Form 10-Q Andersons, Inc. For: Sep 30
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E-mailUNITED 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 09/30/2022
| 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)
| (State of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (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: | ||||||||||||
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.
| ý | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ý
The registrant had 33,502,914 common shares outstanding at October 21, 2022.
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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Sales and merchandising revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales and merchandising revenues | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating, administrative and general expenses | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Other income, net: | |||||||||||||||||||||||
| Equity in earnings (losses) of affiliates, net | ( | ( | |||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Income before income taxes from continuing operations | |||||||||||||||||||||||
| Income tax provision from continuing operations | |||||||||||||||||||||||
| Net income from continuing operations | |||||||||||||||||||||||
| Income from discontinued operations, net of income taxes | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | ( | ( | |||||||||||||||||||||
| Net income attributable to The Andersons, Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Average number of shares outstanding - basic | |||||||||||||||||||||||
| Average number of share outstanding - diluted | |||||||||||||||||||||||
| Earnings per share attributable to The Andersons, Inc. common shareholders: | |||||||||||||||||||||||
| Basic earnings: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Diluted earnings: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2022 Form 10-Q | 1
The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Change in unrecognized actuarial gain (loss) and prior service cost | ( | ( | ( | ||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Cash flow hedge activity | |||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Comprehensive income (loss) attributable to the noncontrolling interests | ( | ( | |||||||||||||||||||||
| Comprehensive income attributable to The Andersons, Inc. | $ | $ | $ | $ | |||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2022 Form 10-Q | 2
The Andersons, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | ||||||||||||||
| Assets | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||||||||
| Accounts receivable, net | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Total current assets | |||||||||||||||||
| Other assets: | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Other intangible assets, net | |||||||||||||||||
| Right of use assets, net | |||||||||||||||||
| Other assets, net | |||||||||||||||||
| Total other assets | |||||||||||||||||
| Total assets | $ | $ | $ | ||||||||||||||
| Liabilities and equity | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| $ | $ | $ | |||||||||||||||
| Trade and other payables | |||||||||||||||||
| Customer prepayments and deferred revenue | |||||||||||||||||
| Accrued taxes | |||||||||||||||||
| Accrued expenses and other current liabilities | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Long-term lease liabilities | |||||||||||||||||
| Deferred income taxes | |||||||||||||||||
| Other long-term liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
| Shareholders’ equity: | |||||||||||||||||
Common shares, without par value ( | |||||||||||||||||
Preferred shares, without par value ( | |||||||||||||||||
| Additional paid-in-capital | |||||||||||||||||
Treasury shares, at cost ( | ( | ( | ( | ||||||||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||||||||
| Retained earnings | |||||||||||||||||
| Total shareholders’ equity of The Andersons, Inc. | |||||||||||||||||
| Noncontrolling interests | |||||||||||||||||
| Total equity | |||||||||||||||||
| Total liabilities and equity | $ | $ | $ | ||||||||||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2022 Form 10-Q | 3
The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Nine months ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating Activities | |||||||||||
| Net income from continuing operations | $ | $ | |||||||||
| Income from discontinued operations, net of income taxes | |||||||||||
| Net income | |||||||||||
| Adjustments to reconcile net income to cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Bad debt expense, net | ( | ||||||||||
| Equity in (earnings) losses of affiliates, net of dividends | ( | ||||||||||
| Gain on sale of business from continuing operations | ( | ||||||||||
| (Gain) loss on sale of business from discontinued operations | ( | ||||||||||
| Gain on sales of assets, net | ( | ( | |||||||||
| Stock-based compensation expense | |||||||||||
| Deferred federal income tax | ( | ( | |||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | |||||||||||
| Commodity derivatives | ( | ( | |||||||||
| Other current and non-current assets | ( | ||||||||||
| Payables and other current and non-current liabilities | ( | ( | |||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Investing Activities | |||||||||||
| Purchases of property, plant and equipment and capitalized software | ( | ( | |||||||||
| Proceeds from sale of assets | |||||||||||
| Purchases of investments | ( | ( | |||||||||
| Proceeds from sale of business from continuing operations | |||||||||||
| Proceeds from sale of business from discontinued operations | |||||||||||
| Purchases of Rail assets | ( | ( | |||||||||
| Proceeds from sale of Rail assets | |||||||||||
| Other | |||||||||||
| Net cash provided by investing activities | |||||||||||
| Financing Activities | |||||||||||
| Net receipts (payments) under short-term lines of credit | ( | ||||||||||
| Proceeds from issuance of short-term debt | |||||||||||
| Payments of short-term debt | ( | ( | |||||||||
| Proceeds from issuance of long-term debt | |||||||||||
| Payments of long-term debt | ( | ( | |||||||||
| Contributions from noncontrolling interest owner | |||||||||||
| Distributions to noncontrolling interest owner | ( | ( | |||||||||
| Payments of debt issuance costs | ( | ( | |||||||||
| Dividends paid | ( | ( | |||||||||
| Proceeds from exercises of stock options | |||||||||||
| Common stock repurchased | ( | ||||||||||
| Other | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rates on cash and cash equivalents | ( | ( | |||||||||
| Increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2022 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, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | ( | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | |||||||||||||||||||||||||||||||||||||||||
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $ | |||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||||||||||||||||||||||||||||||||
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $ | |||||||||||||||||||||||||||||||||||||||||
Purchase of treasury shares ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
The Andersons, Inc. | Q3 2022 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, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | ( | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from Accumulated other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
| Cash received from noncontrolling interests, net | |||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||||||||||||||||||||||||||||||||
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Restricted share award dividend equivalents | ( | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from Accumulated other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
| Cash received from noncontrolling interests, net | |||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||||||||||||||||||||||||||||||||
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $ | ( | ||||||||||||||||||||||||||||||||||||||||
Purchase of treasury shares ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Restricted share award dividend equivalents | ( | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2022 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, which primarily consisted 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 Condensed Consolidated Statements of Operations for all periods presented. Throughout this Quarterly Report on Form 10-Q, with the exception of the Condensed Consolidated Statements of Cash Flows and unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
Certain reclassifications have been made to the prior year financial statements to conform to current year classifications. The reclassification relates to the Condensed Consolidated Balance Sheet presentation of assets and liabilities as held-for-sale and Condensed Consolidated Statements of Operations presentation of results classified as discontinued operations in relation to the Rail business transactions noted above.
In the opinion of management, all adjustments consisting of normal and recurring items considered necessary for the fair presentation of the results of operations, financial position, and cash flows for the periods indicated have been made. The results in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. An unaudited Condensed Consolidated Balance Sheet as of September 30, 2021 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 2021 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, 2021 (the “2021 Form 10-K”).
The Andersons, Inc. | Q3 2022 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, 2022 | December 31, 2021 | September 30, 2021 | ||||||||||||||
| Grain and other agricultural products (a) | $ | $ | $ | ||||||||||||||
| Propane and frac sand (a) | |||||||||||||||||
| Ethanol and co-products (a) | |||||||||||||||||
| Plant nutrients and cob products | |||||||||||||||||
| Total inventories | $ | $ | $ | ||||||||||||||
(a) Includes RMI of $1,167.0 million, $1,410.9 million and $700.3 million at September 30, 2022, December 31, 2021 and September 30, 2021, respectively.
Inventories do not include 0.9 million, 3.0 million and 2.0 million bushels of grain held in storage for others as of September 30, 2022, December 31, 2021 and September 30, 2021, respectively. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.
3. Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
| (in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | ||||||||||||||
| Land | $ | $ | $ | ||||||||||||||
| Land improvements and leasehold improvements | |||||||||||||||||
| Buildings and storage facilities | |||||||||||||||||
| Machinery and equipment | |||||||||||||||||
| Construction in progress | |||||||||||||||||
| Less: accumulated depreciation | |||||||||||||||||
| Property, plant and equipment, net | $ | $ | $ | ||||||||||||||
The Andersons, Inc. | Q3 2022 Form 10-Q | 8
4. Debt
Short-term and long-term debt at September 30, 2022, December 31, 2021 and September 30, 2021 consisted of the following:
| (in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | ||||||||||||||
| Short-term debt – non-recourse | $ | $ | $ | ||||||||||||||
| Short-term debt – recourse | |||||||||||||||||
| Total short-term debt | $ | $ | $ | ||||||||||||||
| Current maturities of long-term debt – non-recourse | $ | $ | $ | ||||||||||||||
| Current maturities of long-term debt – recourse | |||||||||||||||||
| Total current maturities of long-term debt | $ | $ | $ | ||||||||||||||
| Long-term debt, less: current maturities – non-recourse | $ | $ | $ | ||||||||||||||
| Long-term debt, less: current maturities – recourse | |||||||||||||||||
| Total long-term debt, less: current maturities | $ | $ | $ | ||||||||||||||
On March 2, 2022, the Company completed an incremental term loan amendment to its credit agreement dated January 11, 2019. The amendment provided for a short-term note of $250.0 million in which the entire stated principal was due on May 31, 2022 (subsequently extended to August 31, 2022 as described below). On March 9, 2022, the Company completed an additional term loan amendment that expanded the short-term note capacity from $250.0 million to $450.0 million. On May 27, 2022, the Company completed an additional amendment to convert the $350.0 million then outstanding balance from the $450.0 million incremental term loan amendment to a revolving credit agreement with a capacity of up to $450.0 million. The entire amount outstanding was due on August 31, 2022 and was fully repaid during the third quarter of 2022.
On March 28, 2022, the Company amended its credit agreement dated January 11, 2019. The amendment increased borrowing capacity on the revolver from $900.0 million to $1,550.0 million and extended the maturity dates of the $140.6 million and $209.4 million long-term notes originally due in 2026 to March 26, 2027 and March 28, 2029, respectively. The amendment also transitions the reference rate in the credit agreement from LIBOR to SOFR. The revolver and term notes will bear interest at variable rates, which are based on SOFR plus an applicable spread.
During the first quarter of 2022, the Company repaid the remaining $200.0 million balance that was outstanding as of December 31, 2021 on a short-term note that was classified as recourse debt to the Company.
The total borrowing capacity of the Company's lines of credit at September 30, 2022 was $1,978.6 million of which the Company had a total of $1,302.6 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, 2022, December 31, 2021 and September 30, 2021, the estimated fair value of long-term debt, including the current portion, was $602.2 million, $650.7 million and $667.9 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 ELEMENT's non-recourse debt was out of compliance regarding the minimum working capital covenant as of August 31, 2022, and is virtually certain to be out of compliance for an owner's equity ratio covenant within the next 12 months. If ELEMENT does not cure or obtain a waiver for the covenants, it would result in an event of default, which could result in the lender accelerating the maturity of 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. As ELEMENT was out of compliance and has not yet cured or obtained a waiver, the $65.2 million of non-recourse debt associated with ELEMENT has been classified as current maturity of long-term debt as of September 30, 2022.
The Andersons, Inc. | Q3 2022 Form 10-Q | 9
5. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Trade and Renewables businesses have established “unhedged” futures position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract). To reduce the exposure to market price risk on commodities owned and forward purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over-the-counter forward and option contracts with various counterparties. These contracts are primarily traded via regulated commodity exchanges. The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Most contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year .
Most of these contracts meet the definition of derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company primarily accounts for its commodity derivatives at estimated fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and commodity inventories are included in cost of sales and merchandising revenues.
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Condensed Consolidated Balance Sheets.
The following table presents at September 30, 2022, December 31, 2021 and September 30, 2021, 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, 2022 | December 31, 2021 | September 30, 2021 | ||||||||||||||
| Cash collateral paid | $ | $ | $ | ||||||||||||||
| Fair value of derivatives | ( | ( | ( | ||||||||||||||
| Net derivative asset position | $ | $ | $ | ||||||||||||||
The Andersons, Inc. | Q3 2022 Form 10-Q | 10
The following table presents, on a gross basis, current and non-current commodity derivative assets and liabilities:
| September 30, 2022 | |||||||||||||||||||||||||||||
| (in thousands) | Commodity Derivative Assets - Current | Commodity Derivative Assets - Noncurrent | Commodity Derivative Liabilities - Current | Commodity Derivative Liabilities - Noncurrent | Total | ||||||||||||||||||||||||
| Commodity derivative assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commodity derivative liabilities | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Cash collateral paid | |||||||||||||||||||||||||||||
| Balance sheet line item totals | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
| (in thousands) | Commodity Derivative Assets - Current | Commodity Derivative Assets - Noncurrent | Commodity Derivative Liabilities - Current | Commodity Derivative Liabilities - Noncurrent | Total | ||||||||||||||||||||||||
| Commodity derivative assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commodity derivative liabilities | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Cash collateral paid | |||||||||||||||||||||||||||||
| Balance sheet line item totals | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commodity derivative liabilities | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Cash collateral paid | |||||||||||||||||||||||||||||
| Balance sheet line item totals | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
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, 2022 and 2021 as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Gains (losses) on commodity derivatives included in Cost of sales and merchandising revenues | $ | ( | $ | ( | $ | $ | |||||||||||||||||
The Andersons, Inc. | Q3 2022 Form 10-Q | 11
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at September 30, 2022, December 31, 2021 and September 30, 2021:
| September 30, 2022 | |||||||||||||||||
| (in thousands) | Number of Bushels | Number of Gallons | Number of Tons | ||||||||||||||
| Non-exchange traded: | |||||||||||||||||
| Corn | |||||||||||||||||
| Soybeans | |||||||||||||||||
| Wheat | |||||||||||||||||
| Oats | |||||||||||||||||
| Ethanol | |||||||||||||||||
| Dried distillers grain | |||||||||||||||||
| Soybean meal | |||||||||||||||||
| Other | |||||||||||||||||
| Subtotal | |||||||||||||||||
| Exchange traded: | |||||||||||||||||
| Corn | |||||||||||||||||
| Soybeans | |||||||||||||||||
| Wheat | |||||||||||||||||
| Oats | |||||||||||||||||
| Ethanol | |||||||||||||||||
| Propane | |||||||||||||||||
| Other | |||||||||||||||||
| Subtotal | |||||||||||||||||
| Total | |||||||||||||||||
| December 31, 2021 | |||||||||||||||||
| (in thousands) | Number of Bushels | Number of Gallons | Number of Tons | ||||||||||||||
| Non-exchange traded: | |||||||||||||||||
| Corn | |||||||||||||||||
| Soybeans | |||||||||||||||||
| Wheat | |||||||||||||||||
| Oats | |||||||||||||||||
| Ethanol | |||||||||||||||||
| Dried distillers grain | |||||||||||||||||
| Soybean meal | |||||||||||||||||
| Other | |||||||||||||||||
| Subtotal | |||||||||||||||||
| Exchange traded: | |||||||||||||||||
| Corn | |||||||||||||||||
| Soybeans | |||||||||||||||||
| Wheat | |||||||||||||||||
| Oats | |||||||||||||||||
| Ethanol | |||||||||||||||||
| Propane | |||||||||||||||||
| Other | |||||||||||||||||
| Subtotal | |||||||||||||||||
| Total | |||||||||||||||||
The Andersons, Inc. | Q3 2022 Form 10-Q | 12
| September 30, 2021 | |||||||||||||||||
| (in thousands) | Number of Bushels | Number of Gallons | Number of Tons | ||||||||||||||
| Non-exchange traded: | |||||||||||||||||
| Corn | |||||||||||||||||
| Soybeans | |||||||||||||||||
| Wheat | |||||||||||||||||
| Oats | |||||||||||||||||
| Ethanol | |||||||||||||||||
| Dried distillers grain | |||||||||||||||||
| Soybean meal | |||||||||||||||||
| Other | |||||||||||||||||
| Subtotal | |||||||||||||||||
| Exchange traded: | |||||||||||||||||
| Corn | |||||||||||||||||
| Soybeans | |||||||||||||||||
| Wheat | |||||||||||||||||
| Oats | |||||||||||||||||
| Ethanol | |||||||||||||||||
| Propane | |||||||||||||||||
| Other | |||||||||||||||||
| Subtotal | |||||||||||||||||
| Total | |||||||||||||||||
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.
| (in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | ||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||
| Interest rate contracts included in Accrued expenses and other current liabilities | $ | $ | ( | $ | |||||||||||||
| Interest rate contracts included in Other long-term liabilities | ( | ||||||||||||||||
| Foreign currency contracts included in Other current (liabilities) assets | ( | ( | |||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||
| Interest rate contracts included in Other current assets | $ | $ | $ | ||||||||||||||
| Interest rate contracts included in Other assets | |||||||||||||||||
| Interest rate contracts included in Accrued expenses and other current liabilities | ( | ( | |||||||||||||||
| Interest rate contracts included in Other long-term liabilities | ( | ( | |||||||||||||||
The Andersons, Inc. | Q3 2022 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) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||||||||
| Interest rate derivative gains (losses) included in Interest expense, net | $ | $ | $ | ( | $ | ||||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||
| Interest rate derivative gains (losses) included in Other comprehensive income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Interest rate derivative gains (losses) included in Interest expense, net | ( | ( | ( | ||||||||||||||||||||
Outstanding interest rate derivatives, as of September 30, 2022, are as follows:
| Interest Rate Hedging Instrument | Year Entered | Year of Maturity | Initial Notional Amount (in millions) | Description | Interest Rate | |||||||||||||||||||||||||||
| Long-term | ||||||||||||||||||||||||||||||||
| Swap | 2019 | 2025 | $ | Interest rate component of debt - accounted for as a hedge | ||||||||||||||||||||||||||||
| Swap | 2019 | 2025 | $ | Interest rate component of debt - accounted for as a hedge | ||||||||||||||||||||||||||||
| Swap | 2019 | 2025 | $ | Interest rate component of debt - accounted for as a hedge | ||||||||||||||||||||||||||||
| Swap | 2020 | 2030 | $ | Interest rate component of debt - accounted for as a hedge | ||||||||||||||||||||||||||||
| Swap | 2020 | 2030 | $ | Interest rate component of debt - accounted for as a hedge | ||||||||||||||||||||||||||||
| Swap | 2022 | 2025 | $ | Interest rate component of debt - accounted for as a hedge | ||||||||||||||||||||||||||||
| Swap | 2022 | 2029 | $ | Interest rate component of debt - accounted for as a hedge | ||||||||||||||||||||||||||||
| Swap | 2022 | 2029 | $ | Interest rate component of debt - accounted for as a hedge | ||||||||||||||||||||||||||||
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 Renewables sales contracts are derivatives under ASC 815, Derivatives and Hedging. The breakdown of revenues between the two standards are as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenues under ASC 606 | $ | $ | $ | $ | |||||||||||||||||||
| Revenues under ASC 815 | |||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
The remainder of this note applies only to those revenues that are accounted for under ASC 606.
The Andersons, Inc. | Q3 2022 Form 10-Q | 14
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, 2022 and 2021, respectively:
| Three months ended September 30, 2022 | |||||||||||||||||||||||
| (in thousands) | Trade | Renewables | Plant Nutrient | Total | |||||||||||||||||||
| Specialty nutrients | $ | $ | $ | $ | |||||||||||||||||||
| Primary nutrients | |||||||||||||||||||||||
| Products and co-products | |||||||||||||||||||||||
| Propane and frac sand | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Three months ended September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | Trade | Renewables | Plant Nutrient | Total | |||||||||||||||||||
| Specialty nutrients | $ | $ | $ | $ | |||||||||||||||||||
| Primary nutrients | |||||||||||||||||||||||
| Products and co-products | |||||||||||||||||||||||
| Propane and frac sand | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Nine months ended September 30, 2022 | |||||||||||||||||||||||
| (in thousands) | Trade | Renewables | Plant Nutrient | Total | |||||||||||||||||||
| Specialty nutrients | $ | $ | $ | $ | |||||||||||||||||||
| Primary nutrients | |||||||||||||||||||||||
| Products and co-products | |||||||||||||||||||||||
| Propane and frac sand | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Nine months ended September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | Trade | Renewables | Plant Nutrient | Total | |||||||||||||||||||
| Specialty nutrients | $ | $ | $ | $ | |||||||||||||||||||
| Primary nutrients | |||||||||||||||||||||||
| Products and co-products | |||||||||||||||||||||||
| Propane and frac sand | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Substantially all of the Company's revenues accounted for under ASC 606 during the three and nine months ended September 30, 2022 and 2021, respectively, are recorded at a point in time instead of over time.
The Andersons, Inc. | Q3 2022 Form 10-Q | 15
Contract balances
The balances of the Company’s contract liabilities were $32.4 million and $100.8 million as of September 30, 2022 and December 31, 2021, respectively. The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. The main driver of the contract liabilities balance as of December 31, 2021, 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 and through the first quarter in preparation for the spring application season. As expected, the revenue recognized in the second and third quarters satisfied the contract liabilities throughout the spring application season for the Plant Nutrient segment.
7. Income Taxes
On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes, if necessary, based on new information or events. The estimated annual effective tax rate is forecasted based on actual historical information and forward-looking estimates and is used to provide for income taxes in interim reporting periods. The Company also recognizes the tax impact of certain unusual or infrequently occurring items, such as the effects of changes in tax laws or rates and impacts from settlements with tax authorities, discretely in the quarter in which they occur.
For the three months ended September 30, 2022, the Company recorded income tax expense from continuing operations of $9.8 million. The Company's effective tax rate was 28.3 % on income before taxes from continuing operations of $34.7 million. The difference between the 28.3 % effective tax rate and the U.S. federal statutory tax rate of 21.0% is primarily attributable to the tax impact of non-controlling interest and state and local income taxes.
For the three months ended September 30, 2021, the Company recorded income tax expense from continuing operations of $4.0 million. The Company’s effective tax rate was 24.7 % on income from continuing operations of $16.3 million. The effective tax rate differs from the U.S. federal statutory tax rate of 21.0% due to the tax impact of certain discrete derivatives and hedging activities, state and local taxes, and nondeductible compensation offset by the tax impact of non-controlling interest.
For the nine months ended September 30, 2022, the Company recorded income tax expense from continuing operations of $29.7 million. The Company's effective tax rate was 18.2 % on income before taxes from continuing operations of $163.5 million. The difference between the 18.2 % effective tax rate and the U.S. federal statutory tax rate of 21.0% is primarily attributable to the tax impact of non-controlling interest as well as certain discrete derivatives and hedging activities offset by state and local income taxes and nondeductible compensation.
For the nine months ended September 30, 2021, the Company recorded income tax expense from continuing operations of $18.1 million. The Company’s effective tax rate was 21.5 % on income from continuing operations of $84.1 million. The effective tax rate differs from the U.S. federal statutory tax rate of 21.0% due to the tax impact of state and local taxes and nondeductible compensation offset by non-controlling interest and certain discrete derivatives and hedging activities.
The Andersons, Inc. | Q3 2022 Form 10-Q | 16
8. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss) ("AOCI") attributable to the Company for the three and nine months ended September 30, 2022 and 2021:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Currency Translation Adjustment | ||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ( | ( | ||||||||||||||||||||||
| Tax effect | ||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ( | ( | ||||||||||||||||||||||
| Ending balance | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Hedging Adjustment | ||||||||||||||||||||||||||
| Beginning balance | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | |||||||||||||||||||||||||
| Amounts reclassified from AOCI (a) | ( | |||||||||||||||||||||||||
| Tax effect | ( | ( | ( | ( | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||||
| Ending balance | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Pension and Other Postretirement Adjustment | ||||||||||||||||||||||||||
| Beginning balance | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ||||||||||||||||||||||||||
| Amounts reclassified from AOCI (b) | ( | ( | ( | ( | ||||||||||||||||||||||
| Tax effect | ( | |||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ( | |||||||||||||||||||||||
| Ending balance | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Investments in Convertible Preferred Securities Adjustment | ||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||||||||||||
| Total AOCI Ending Balance | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
(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 2022 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, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
Net income (loss) attributable to noncontrolling interests(a) | ( | ( | |||||||||||||||||||||
| Net income attributable to The Andersons Inc. common shareholders from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Income from discontinued operations, net of income taxes | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding – basic | |||||||||||||||||||||||
| Effect of dilutive awards | |||||||||||||||||||||||
| Weighted average shares outstanding – diluted | |||||||||||||||||||||||
| Earnings per share attributable to The Andersons, Inc. common shareholders: | |||||||||||||||||||||||
| Basic earnings: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Diluted earnings: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
(a) All net income (loss) attributable to noncontrolling interests is within continuing operations of the Company.
The Andersons, Inc. | Q3 2022 Form 10-Q | 18
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, 2022, December 31, 2021 and September 30, 2021:
| (in thousands) | September 30, 2022 | ||||||||||||||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Commodity derivatives, net (a) | $ | $ | $ | $ | |||||||||||||||||||
Provisionally priced contracts (b) | ( | ( | |||||||||||||||||||||
Convertible preferred securities (c) | |||||||||||||||||||||||
Other assets and liabilities (d) | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| (in thousands) | December 31, 2021 | ||||||||||||||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Commodity derivatives, net (a) | $ | $ | $ | $ | |||||||||||||||||||
Provisionally priced contracts (b) | ( | ( | |||||||||||||||||||||
Convertible preferred securities (c) | |||||||||||||||||||||||
Other assets and liabilities (d) | ( | ( | |||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| (in thousands) | September 30, 2021 | ||||||||||||||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Commodity derivatives, net (a) | $ | $ | $ | $ | |||||||||||||||||||
Provisionally priced contracts (b) | ( | ||||||||||||||||||||||
Convertible preferred securities (c) | |||||||||||||||||||||||
Other assets and liabilities (d) | ( | ( | |||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(a)Includes associated cash posted/received as collateral
(b)Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2)
(c)Recorded in “Other assets, net” on the Company’s Condensed Consolidated Balance Sheets related to certain available for sale securities.
(d)Included in other assets and liabilities are assets held by the Company to fund deferred compensation plans and foreign exchange derivative contracts (Level 1), as well as interest rate derivatives (Level 2).
Level 1 commodity derivatives reflect the fair value of the exchanged-traded futures and options contracts that the Company holds, net of the cash collateral, that the Company has in its margin account.
The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices quoted on various exchanges for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because “basis” for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the agribusiness industry, the Company has concluded that “basis” is typically a Level 2 fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives, depending on the specific commodity. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a significant input to fair value for these commodity contracts.
The Andersons, Inc. | Q3 2022 Form 10-Q | 19
These fair value disclosures exclude RMI which consists of agricultural commodity inventories measured at net realizable value. The net realizable value used to measure the Company’s agricultural commodity inventories is the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. This valuation would generally be considered Level 2. The amount of RMI is disclosed in Note 2. Changes in the net realizable value of commodity inventories are recognized as a component of cost of sales and merchandising revenues.
Provisionally priced contract liabilities are those for which the Company has taken ownership and possession of grain, but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or the Company has delivered provisionally priced grain and a subsequent payable or receivable is set up for any future changes in the grain price, quoted exchange prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. For all other unpriced contracts which include variable futures and basis components, the amounts recorded for delayed price contracts are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy.
The convertible preferred securities are interests in several early-stage enterprises that may be in various forms, such as convertible debt or preferred equity securities.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
| Convertible Preferred Securities | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Assets at January 1, | $ | $ | |||||||||
| Additional investments | |||||||||||
| Gains included in Other income, net | |||||||||||
| Assets at March 31, | $ | $ | |||||||||
| Additional Investments | |||||||||||
| Gains included in Other income, net | |||||||||||
| Assets at June 30, | $ | $ | |||||||||
| Additional investments | |||||||||||
| Gains (losses) included in Other income, net | ( | ||||||||||
| Assets at September 30, | $ | $ | |||||||||
The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of September 30, 2022, December 31, 2021 and September 30, 2021:
| Quantitative Information about Recurring Level 3 Fair Value Measurements | |||||||||||||||||||||||||||||||||||
| Fair Value as of | |||||||||||||||||||||||||||||||||||
| (in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | Valuation Method | Unobservable Input | Weighted Average | |||||||||||||||||||||||||||||
Convertible preferred securities (a) | $ | $ | $ | Implied based on market prices | N/A | N/A | |||||||||||||||||||||||||||||
(a) The Company considers observable price changes and other additional market data available to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.
| Quantitative Information about Non-Recurring Level 3 Fair Value Measurements | |||||||||||||||||||||||
| (in thousands) | Fair Value as of 12/31/2021 | Valuation Method | Unobservable Input | Weighted Average | |||||||||||||||||||
| Frac sand assets (b) | $ | Third party appraisal | Various | N/A | |||||||||||||||||||
| Real property (c) | Market approach | Various | N/A | ||||||||||||||||||||
(b) The Company recognized impairment charges on long lived assets related to its frac sand business. The fair value of the assets were determined using prior transactions and third-party appraisals. These measures are considered Level 3 inputs on a nonrecurring basis.
(c) The Company recognized impairment charges on certain Trade assets and measured the fair value using Level 3 inputs on a nonrecurring basis. The fair value of the assets was determined using prior transactions in the local market and a recent sale of comparable Trade group assets held by the Company.
There were no non-recurring fair value measurements as of September 30, 2022 and September 30, 2021.
The Andersons, Inc. | Q3 2022 Form 10-Q | 20
11. Related Parties
In the ordinary course of business, and on an arm's length basis, the Company will enter into related party transactions with the minority shareholders of the Company's Renewables operations and several equity method investments that the Company holds, along with other related parties.
The following table sets forth the related party transactions entered into for the time periods presented:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Sales revenues | $ | $ | $ | $ | |||||||||||||||||||
| Purchases of product and capital assets | |||||||||||||||||||||||
| (in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | ||||||||||||||
| Accounts receivable | $ | $ | $ | ||||||||||||||
| Accounts payable | |||||||||||||||||
12. Segment Information
The Company’s operations include three reportable business segments that are distinguished primarily on the basis of products and services offered as well as the structure of management. The Trade business includes commodity merchandising and the operation of terminal grain elevator facilities. The Renewables business produces ethanol and co-products through its five co-owned and fully consolidated ethanol production facilities as well as purchases and sells ethanol and ethanol co-products. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers, along with turf care and corncob-based products. The Other category includes other corporate level costs not attributable to an operating segment and intercompany eliminations between the segments. See Note 14 for details of the divestiture of the Rail segment.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. The Company does not have any customers who represent 10 percent or more of total revenues.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenues from external customers | |||||||||||||||||||||||
| Trade | $ | $ | $ | $ | |||||||||||||||||||
| Renewables | |||||||||||||||||||||||
| Plant Nutrient | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Income (loss) before income taxes from continuing operations | |||||||||||||||||||||||
| Trade | $ | $ | $ | $ | |||||||||||||||||||
Renewables1 | ( | ||||||||||||||||||||||
| Plant Nutrient | ( | ( | |||||||||||||||||||||
| Other | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
1 Includes income (loss) attributable to noncontrolling interests of $7.5 million and $(1.6 ) million for the three months ended September 30, 2022 and 2021, respectively, and $29.8 million and $(0.8 ) million for the nine months ended September 30, 2022 and 2021, respectively.
The Andersons, Inc. | Q3 2022 Form 10-Q | 21
13. Commitments and Contingencies
Litigation activities
The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, although individual cases that are material in size occur infrequently. As a defendant, the Company establishes reserves for claimed amounts that are considered probable and capable of estimation. If those cases are resolved for lesser amounts, the excess reserves are taken into income and, conversely, if those cases are resolved for larger than the amount the Company has accrued, the Company records additional expense. The Company believes it is unlikely that the results of its current legal proceedings for which it is the defendant, even if unfavorable, will be material. As a plaintiff, amounts that are collected can also result in sudden, non-recurring income.
Litigation results depend upon a variety of factors, including the availability of evidence, the credibility of witnesses, the performance of counsel, the state of the law, and the impressions of judges and jurors, any of which can be critical in importance, yet difficult, if not impossible, to predict. Consequently, cases currently pending, or future matters, may result in unexpected, and non-recurring losses, or income, from time to time. Finally, litigation results are often subject to judicial reconsideration, appeal and further negotiation by the parties, and as a result, the final impact of a particular judicial decision may be unknown for some time or may result in continued reserves to account for the potential of such post-verdict actions.
Specifically, the Company is party to a non-regulatory litigation claim, which is in response to penalties and fines paid to regulatory entities by a previously unconsolidated subsidiary in 2018 for the settlement of matters which focused on certain trading activity. While the Company believes it has meritorious defenses against the suit, the ultimate resolution of the matter could result in a loss in excess of the amount accrued. Given the status of the claim, the Company does not believe the excess, net of the acquisition-related indemnity, is material.
The estimated losses for all other outstanding claims that are considered reasonably possible are not material.
The Andersons, Inc. | Q3 2022 Form 10-Q | 22
14. Discontinued Operations
On August 16, 2021, the Company entered into a definitive agreement under which the Company sold the assets of the Company’s Rail Leasing business for a cash purchase price of approximately $543.1 million. In conjunction with the sale of the Rail Leasing business, the Company announced its intent to divest the remaining pieces of the Rail Leasing business and the Rail Repair business.
In the third quarter of 2022, the Company finalized the definitive agreement to sell the Rail Repair business and divested substantially all of the remaining leases under the Rail Leasing business. The sale of the Rail Repair business for a purchase price of approximately $56.3 million, resulted in a pre-tax gain of approximately $27.1 million that was recorded in Other income, net in the table below.
As a result of the sale of the Rail Leasing business and the intent to divest the Rail Repair business in the third quarter of 2021, substantially all of the assets and liabilities of the former Rail segment was classified as held for sale in the accompanying Condensed Consolidated Balance Sheets. As a part of the Rail Repair agreement, the Company retained the working capital from the Rail Repair business along with an immaterial group of right of use assets and lease liabilities from the Rail Leasing business that were not sold. The Company no longer has the intent to sell these remaining Rail items and has included these balances in continuing operations within the Condensed Consolidated Balance Sheet as of September 30, 2022.
The table below summarizes the results of the Rail Leasing business and the Rail Repair business for the three and nine months ended September 30, 2022 and 2021 which are reflected in the Consolidated Statements of Operations as discontinued operations:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Sales and merchandising revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales and merchandising revenues | |||||||||||||||||||||||
| Gross profit (loss) | ( | ( | |||||||||||||||||||||
| Operating, administrative and general expenses | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Other income (loss), net | ( | ||||||||||||||||||||||
| Income (loss) from discontinued operations before income taxes | ( | ||||||||||||||||||||||
| Income tax provision | ( | ( | |||||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | $ | $ | $ | $ | |||||||||||||||||||
The following table summarizes the assets and liabilities which are classified as discontinued operations at September 30, 2022, December 31, 2021 and September 30, 2021:
The Andersons, Inc. | Q3 2022 Form 10-Q | 23
| (in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | ||||||||||||||
| Assets | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Accounts receivable, net | $ | $ | $ | ||||||||||||||
| Inventories | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Current assets held-for-sale | |||||||||||||||||
| Other assets: | |||||||||||||||||
| Property, plant and equipment, net | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Right of use assets, net | |||||||||||||||||
| Other assets, net | |||||||||||||||||
| Total non-current assets held-for-sale | |||||||||||||||||
| Total assets held-for-sale | $ | $ | $ | ||||||||||||||
| Liabilities | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Trade and other payables | $ | $ | $ | ||||||||||||||
| Current operating lease liabilities | |||||||||||||||||
| Accrued expenses and other current liabilities | |||||||||||||||||
| Total current liabilities held-for-sale | |||||||||||||||||
| Long-term lease liabilities | |||||||||||||||||
| Total liabilities held-for-sale | $ | $ | $ | ||||||||||||||
The Andersons, Inc. | Q3 2022 Form 10-Q | 24
The following table summarizes cash flow data relating to discontinued operations for the nine months ended September 30, 2022 and 2021:
| Nine months ended September 30, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Depreciation and amortization | $ | $ | |||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from sale of assets | |||||||||||
| (Gain) loss on sale of discontinued operations | ( | ||||||||||
| Non-cash operating activities - gain on sale of railcars | ( | ( | |||||||||
| Non-cash operating activities - asset impairment | |||||||||||
15. Subsequent Events
The Andersons, Inc. | Q3 2022 Form 10-Q | 25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. Such factors include, but are not limited to, the effects on our business from the COVID-19 pandemic and the pace of recovery from the pandemic, economic and political conditions, globally and in the markets we serve including the ongoing economic impacts from the conflict in Ukraine, fluctuations in cost and availability of commodities, weather and agricultural conditions, governmental regulations, the effectiveness of our internal control over financial reporting and the unpredictability of existing and possible future litigation. However, it is not possible to predict or identify all such factors. The reader is urged to carefully consider these risks and others, including those risk factors listed under Item 1A of the 2021 Form 10-K and under Item 1A in this report. In some cases, the reader can identify forward-looking statements by terminology such as may, anticipates, believes, estimates, predicts, or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although management believes that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Critical Accounting Policies and Estimates
Our critical accounting policies and critical accounting estimates, as described in our 2021 Form 10-K, have not materially changed through the third quarter of 2022.
Executive Overview
Our operations are organized, managed and classified into three reportable business segments: Trade, Renewables and Plant Nutrient. Each of these segments is generally based on the nature of products and services offered and aligns with the management structure. Due to the Rail segment being presented as discontinued operations, the Company has excluded Rail from the following discussions of financial condition and results of operations.
The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on Sales and merchandising revenues and Cost of sales and merchandising revenues and a much less significant impact on Gross profit. As a result, changes in Sales and merchandising revenues between periods may not necessarily be indicative of the overall performance of the business and greater emphasis should be placed on changes in Gross profit.
The Company has considered the potential impact that the book value of the Company’s total shareholders’ equity exceeded the Company’s market capitalization during the quarter for impairment indicators. Management ultimately concluded that an impairment triggering event had not occurred. The Company believes that the share price is not an accurate reflection of its current value as conditions are currently strong in the agriculture space with a positive long-term outlook. Management believes that the market’s impact on the Company’s equity value does not actually reflect the impact of these external factors on the Company. As a result of prior period tests, reviews of current operating results and other relevant market factors, the Company concluded that no impairment trigger existed as of September 30, 2022.
Management reviews long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of an asset group may no longer be recoverable. This was the case in the third quarter of 2022 for the Company's 51% owned ELEMENT plant located in Colwich, Kansas. The plant faced a combination of high corn basis, increased natural gas prices and a rapid decline in Low Carbon Fuel Standards credit values, that negatively impacted operations. The adverse operating conditions led to a failure of a debt covenant during the third quarter, as well as, a forecasted failure of another covenant within the next 12 months. Accordingly, it was deemed that a triggering event occurred as of September 30, 2022 related to the ELEMENT ethanol plant. Management performed a recoverability test of the ELEMENT plant’s long-lived assets as this is the lowest level of identifiable cash flows. The key assumptions used in the recoverability test included input costs (corn, natural gas, etc.), production days, and co-product premiums. Each of these inputs were given probability weightings based on
The Andersons, Inc. | Q3 2022 Form 10-Q | 26
management's assessment regarding the likelihood of the respective forecasts. Using future forecasted cash flows, the ELEMENT asset group passed its recoverability test on an undiscounted cash flow basis by 15% over the carrying value of its assets. Therefore, if there are changes to key assumptions in the analysis it is reasonably possible management's estimate that it will recover the carrying amount of these assets could change, even in the near term.
Trade
The Trade segment’s third quarter operating results improved from the prior year as the segment benefited from strong elevation margins at our grain assets. In addition, well-positioned feed ingredients inventory generated good margins.
Agricultural inventories on hand were 103.1 million and 84.1 million bushels at September 30, 2022 and September 30, 2021, respectively. These bushels consist of inventory held at company-owned or leased facilities, transload inventory, in-transit inventory, and third-party held inventory. Total Trade storage space capacity at company-owned or leased facilities, including temporary pile storage, was approximately 185 million bushels at September 30, 2022, which was comparable to the prior year.
The majority of our assets are located in areas expected to experience above-trend yields. Continuing global supply and demand imbalances within the market from production shortfalls and logistical challenges are expected to keep prices historically high and should allow for continued merchandising opportunities and strong elevation margins through the end of the year.
Renewables
The Renewables segment's third quarter operating results increased from the prior year due to continued strength in co-product values and higher production margins in our ethanol plants. This was particularly evident in our eastern plants where corn basis was lower in anticipation of a strong harvest. The renewable diesel feedstock merchandising business also contributed to results.
Higher corn costs for ethanol production in the western U.S. may negatively impact ethanol production in that region, while our eastern corn belt production facilities are well-positioned for an affordable corn supply in the near future.
Ethanol and related co-products volumes for the three and nine months ended September 30, 2022 and 2021 were as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Ethanol (gallons shipped) | 184,845 | 184,655 | 576,392 | 538,955 | |||||||||||||||||||
| E-85 (gallons shipped) | 11,624 | 12,977 | 28,938 | 32,781 | |||||||||||||||||||
| Corn oil (pounds shipped) | 141,313 | 79,756 | 373,858 | 188,974 | |||||||||||||||||||
| DDG (tons shipped)* | 386 | 570 | 1,336 | 1,544 | |||||||||||||||||||
* DDG tons shipped converts wet tons to a dry ton equivalent amount.
Plant Nutrient
The Plant Nutrient segment's third quarter operating results decreased from the prior period. Ag Supply Chain and Specialty Liquids product lines continued to see strong margins on well-positioned inventory, which more than offset a decline in volumes. The Engineered Granules business recorded some inventory write-offs on lawn products, which negatively impacted our performance. While we have seen base nutrient prices level off in the third quarter, continued strong global demand, a tight supply and high farmer income should continue to support the fundamentals of this business.
Storage capacity at our Ag Supply Chain and Specialty Liquids facilities, including leased storage, was approximately 448 thousand tons for dry nutrients and approximately 511 thousand tons for liquid nutrients at September 30, 2022, which is similar to the prior year.
The Andersons, Inc. | Q3 2022 Form 10-Q | 27
Tons of product sold for the three and nine months ended September 30, 2022 and 2021 were as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Ag Supply Chain | 191 | 253 | 840 | 1,261 | |||||||||||||||||||
| Specialty Liquids | 70 | 71 | 261 | 304 | |||||||||||||||||||
| Engineered Granules | 51 | 60 | 278 | 383 | |||||||||||||||||||
| Total tons | 312 | 384 | 1,379 | 1,948 | |||||||||||||||||||
In the table above, Ag Supply Chain represents facilities principally engaged in the wholesale distribution and retail sale and application of primary agricultural nutrients such as bulk nitrogen, phosphorus, and potassium. Specialty Liquid locations produce and sell a variety of low-salt liquid starter fertilizers, micronutrients for agricultural use, and specialty products for use in various industrial processes. Engineered Granules include a variety of corncob-based products and facilities that primarily manufacture granulated dry products for use in specialty turf and agricultural applications.
Other
Our “Other” activities include corporate income and expense and cost for functions that provide support and services to the operating segments. The results include expenses and benefits not allocated to the operating segments and other elimination and consolidation adjustments.
The Andersons, Inc. | Q3 2022 Form 10-Q | 28
Operating Results
The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Operations and includes a separate discussion by segment. Additional segment information is included herein in Note 12, Segment Information.
Comparison of the three months ended September 30, 2022 with the three months ended September 30, 2021 including a reconciliation of GAAP to non-GAAP measures:
| Three months ended September 30, 2022 | |||||||||||||||||||||||||||||
| (in thousands) | Trade | Renewables | Plant Nutrient | Other | Total | ||||||||||||||||||||||||
| Sales and merchandising revenues | $ | 3,240,526 | $ | 814,923 | $ | 163,876 | $ | — | $ | 4,219,325 | |||||||||||||||||||
| Cost of sales and merchandising revenues | 3,116,158 | 790,246 | 149,156 | — | 4,055,560 | ||||||||||||||||||||||||
| Gross profit | 124,368 | 24,677 | 14,720 | — | 163,765 | ||||||||||||||||||||||||
| Operating, administrative and general expenses | 73,347 | 7,053 | 25,427 | 9,712 | 115,539 | ||||||||||||||||||||||||
| Interest expense (income), net | 10,782 | 2,555 | 1,920 | (275) | 14,982 | ||||||||||||||||||||||||
| Equity in earnings (losses) of affiliates, net | 681 | — | — | — | 681 | ||||||||||||||||||||||||
| Other income (expense), net | (262) | 832 | 1,018 | (794) | 794 | ||||||||||||||||||||||||
| Income (loss) before income taxes from continuing operations | $ | 40,658 | $ | 15,901 | $ | (11,609) | $ | (10,231) | $ | 34,719 | |||||||||||||||||||
| Income (loss) before income taxes attributable to the noncontrolling interests | — | 7,524 | — | — | 7,524 | ||||||||||||||||||||||||
| Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 40,658 | $ | 8,377 | $ | (11,609) | $ | (10,231) | $ | 27,195 | |||||||||||||||||||
| Three months ended September 30, 2021 | |||||||||||||||||||||||||||||
| (in thousands) | Trade | Renewables | Plant Nutrient | Other | Total | ||||||||||||||||||||||||
| Sales and merchandising revenues | $ | 2,242,131 | $ | 614,637 | $ | 142,056 | $ | — | $ | 2,998,824 | |||||||||||||||||||
| Cost of sales and merchandising revenues | 2,143,935 | 608,886 | 124,168 | — | 2,876,989 | ||||||||||||||||||||||||
| Gross profit | 98,196 | 5,751 | 17,888 | — | 121,835 | ||||||||||||||||||||||||
| Operating, administrative and general expenses | 67,590 | 10,014 | 22,883 | 9,788 | 110,275 | ||||||||||||||||||||||||
| Interest expense (income), net | 5,243 | 1,658 | 1,146 | 752 | 8,799 | ||||||||||||||||||||||||
| Equity in earnings (losses) of affiliates, net | (250) | — | — | — | (250) | ||||||||||||||||||||||||
| Other income (expense), net | 16,886 | 683 | 309 | (4,072) | 13,806 | ||||||||||||||||||||||||
| Income (loss) before income taxes from continuing operations | $ | 41,999 | $ | (5,238) | $ | (5,832) | $ | (14,612) | $ | 16,317 | |||||||||||||||||||
| Income (loss) before income taxes attributable to the noncontrolling interests | — | (1,602) | — | — | (1,602) | ||||||||||||||||||||||||
| Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 41,999 | $ | (3,636) | $ | (5,832) | $ | (14,612) | $ | 17,919 | |||||||||||||||||||
The Company uses Income (loss) before income taxes attributable to the Company from continuing operations, a non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. Management believes that Income (loss) before income taxes attributable to the Company from continuing operations is a useful measure of the Company’s performance because it provides investors additional information about the Company's operations allowing evaluation of underlying business performance and period-to-period comparability. This measure is not intended to replace or be an alternative to Income (loss) before income taxes from continuing operations, the most directly comparable amounts reported under GAAP.
The Andersons, Inc. | Q3 2022 Form 10-Q | 29
Trade
While operating results for the Trade segment were consistent year over year, prior year results include a large one-time gain from the sale of a grain asset that did not reoccur. Sales and merchandising revenues increased by $998.4 million and cost of sales and merchandising revenues increased by $972.2 million for a favorable net gross profit impact of $26.2 million. The increase to sales and merchandising revenues and cost of sales and merchandising revenues is mainly a result of new merchandising locations opened in the second half of 2021 as these new locations are responsible for approximately 65% of the increase from the prior year. The remainder of the increase from the prior year was a result of increased commodity prices and volumes in the existing business. The increase in gross profit was mainly a result of improved margins as they accounted for approximately 80% of the improvement with increases in volumes responsible for the remainder of the increase from the prior year. The improved margins were driven by strong elevation margins, particularly in our early harvest geographies with the volume increases from our new merchandising locations opened in the second half of 2021.
Operating, administrative and general expenses increased by $5.8 million. The increase from the prior year is primarily related to wage inflation from a strong labor market as it resulted in an increase of approximately $4.0 million. The new merchandising locations caused an additional $1.4 million of expense in the third quarter of 2022.
Interest expense increased by $5.5 million due to higher borrowings with the addition of our new merchandising locations and increased commodity prices that are reflected in the short-term debt within the Company's Condensed Consolidated Balance Sheets along with rising interest rates on the Company's short-term line of credit compared to the prior year.
Other income, net decreased by $17.1 million from the same quarter of 2021. The decrease was primarily attributable to the sale of a grain asset in Champaign, Illinois in which the Company recorded a $14.6 million gain in the prior year that did not reoccur in 2022.
Renewables
Operating results for the Renewables segment increased by $12.0 million from the same period last year. Sales and merchandising revenues increased by $200.3 million and cost of sales and merchandising revenues increased by $181.4 million compared to prior year results. As a result, gross profit increased by $18.9 million compared to 2021 results. The vast majority of the increase to sales and merchandising revenues and cost of sales and merchandising revenues is the result of increased ethanol and corn commodity prices as ethanol volumes sold were consistent between the current year and prior year. The increase to gross profit in the current period results reflect a $15.1 million margin improvement at the ethanol plants, primarily from lower corn basis in our eastern footprint.
Operating, administrative and general expenses decreased by $3.0 million from the prior year. The prior year contained $3.7 million worth of accelerated depreciation expense associated with experimental technology at the Company's ethanol plants that did not reoccur in the third quarter of 2022.
Plant Nutrient
Operating results for the Plant Nutrient segment declined by $5.8 million compared to the same period in the prior year. Sales and merchandising revenues increased by $21.8 million and cost of sales and merchandising revenues increased by $25.0 million resulting in an $3.2 million decrease in gross profit. The increase in sales and merchandising revenues and cost of sales and merchandising revenues was due to fertilizer prices increasing approximately 45% from the prior year. This increase in fertilizer prices from the prior year was partially offset by a decrease in demand as volumes sold decreased by approximately 20% in the third quarter of 2022. The decrease in gross profit was mainly driven by a $3.9 million impact from associated inventory write-downs in the Engineered Granules business.
Operating, administrative and general expenses increased by $2.5 million from the prior year. Most of this increase is due to inflationary pressures, with labor costs being the single biggest driver.
Interest expense increased by $0.8 million due to higher net working capital usage from higher commodity prices along with rising interest rates.
The Andersons, Inc. | Q3 2022 Form 10-Q | 30
Other
Results for the quarter improved by $4.4 million compared to the same period in the prior year. The improvement in results was primarily driven by a $2.8 million loss on a cost method investment and approximately $1.0 million of stranded costs from the Rail Leasing sale in the prior year.
Income Taxes
For the three months ended September 30, 2022, the Company recorded income tax expense from continuing operations of $9.8 million. The Company's effective tax rate was 28.3% on income before taxes from continuing operations of $34.7 million. The difference between the 28.3% effective tax rate and the U.S. federal statutory tax rate of 21% is primarily attributable to the tax impact of non-controlling interest and state and local income taxes.
For the three months ended September 30, 2021, the Company recorded income tax expense from continuing operations of $4.0 million. The Company's effective tax rate was 24.7% on income from continuing operations of $16.3 million. The effective tax rate differs from the U.S. federal statutory tax rate of 21.0% due to the tax impact of certain discrete derivatives and hedging activities, state and local taxes, and nondeductible compensation offset by the tax impact of non-controlling interest.
Comparison of the nine months ended September 30, 2022 with the nine months ended September 30, 2021 including a reconciliation of GAAP to non-GAAP measures:
| Nine months ended September 30, 2022 | |||||||||||||||||||||||||||||
| (in thousands) | Trade | Renewables | Plant Nutrient | Other | Total | ||||||||||||||||||||||||
| Sales and merchandising revenues | $ | 9,422,974 | $ | 2,380,721 | $ | 844,201 | $ | — | $ | 12,647,896 | |||||||||||||||||||
| Cost of sales and merchandising revenues | 9,128,993 | 2,280,965 | 723,797 | — | 12,133,755 | ||||||||||||||||||||||||
| Gross profit | 293,981 | 99,756 | 120,404 | — | 514,141 | ||||||||||||||||||||||||
| Operating, administrative and general expenses | 195,867 | 23,533 | 80,343 | 30,342 | 330,085 | ||||||||||||||||||||||||
| Interest expense (income), net | 32,269 | 6,334 | 5,304 | (1,145) | 42,762 | ||||||||||||||||||||||||
| Equity in earnings (losses) of affiliates, net | (5,597) | — | — | — | (5,597) | ||||||||||||||||||||||||
| Other income (expense), net | 7,745 | 19,750 | 2,688 | (2,401) | 27,782 | ||||||||||||||||||||||||
| Income (loss) before income taxes from continuing operations | $ | 67,993 | $ | 89,639 | $ | 37,445 | $ | (31,598) | $ | 163,479 | |||||||||||||||||||
| Income (loss) before income taxes attributable to the noncontrolling interests | — | 29,827 | — | — | 29,827 | ||||||||||||||||||||||||
| Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 67,993 | $ | 59,812 | $ | 37,445 | $ | (31,598) | $ | 133,652 | |||||||||||||||||||
| Nine months ended September 30, 2021 | |||||||||||||||||||||||||||||
| (in thousands) | Trade | Renewables | Plant Nutrient | Other | Total | ||||||||||||||||||||||||
| Sales and merchandising revenues | $ | 6,522,508 | $ | 1,674,123 | $ | 632,717 | $ | — | $ | 8,829,348 | |||||||||||||||||||
| Cost of sales and merchandising revenues | 6,273,924 | 1,625,173 | 531,568 | — | 8,430,665 | ||||||||||||||||||||||||
| Gross profit | 248,584 | 48,950 | 101,149 | — | 398,683 | ||||||||||||||||||||||||
| Operating, administrative and general expenses | 186,035 | 23,247 | 72,850 | 30,701 | 312,833 | ||||||||||||||||||||||||
| Interest expense (income), net | 19,746 | 5,752 | 3,358 | (8) | 28,848 | ||||||||||||||||||||||||
| Equity in earnings (losses) of affiliates, net | 2,389 | — | — | — | 2,389 | ||||||||||||||||||||||||
| Other income (expense), net | 24,439 | 2,048 | 1,745 | (3,489) | 24,743 | ||||||||||||||||||||||||
| Income (loss) before income taxes from continuing operations | $ | 69,631 | $ | 21,999 | $ | 26,686 | $ | (34,182) | $ | 84,134 | |||||||||||||||||||
| Income (loss) before income taxes attributable to the noncontrolling interests | — | (822) | — | — | (822) | ||||||||||||||||||||||||
| Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 69,631 | $ | 22,821 | $ | 26,686 | $ | (34,182) | $ | 84,956 | |||||||||||||||||||
The Andersons, Inc. | Q3 2022 Form 10-Q | 31
Trade
While operating results for the Trade segment were consistent year over year, prior year results include a large one-time gain from the sale of a grain asset that did not reoccur. Sales and merchandising revenues increased by $2,900.5 million and cost of sales and merchandising revenues increased by $2,855.1 million for an increased gross profit impact of $45.4 million. The increase to sales and merchandising revenues and cost of sales and merchandising revenues is mainly a result of new merchandising locations opened in the second half of 2021 as these new locations are responsible for approximately 60% of the increase from the prior year with the remainder of the increase a result of increased commodity prices and volumes in the existing business. The $45.4 million increase in gross profit was an even split between increases in both margins and volumes. The improved margins were driven by strong elevation margins and well-positioned animal feed ingredients and organic food and specialty inventories with the volume increases from our new merchandising locations opened in the second half of 2021.
Operating, administrative and general expenses increased by $9.8 million. The increase from the prior year is primarily related to approximately $12.2 million of higher labor and benefits costs, with about half from business growth and half from wage inflation.
Interest expense increased by $12.5 million due to higher borrowings with the addition of our new merchandising locations and increased commodity prices that are reflected in the short-term debt within the Company's Condensed Consolidated Balance Sheets along with rising interest rates on the Company's short-term line of credit compared to the prior year.
Equity in earnings of affiliates decreased by $8.0 million mainly due to the results of one of the Company's equity method investments being $8.4 million more favorable in the prior year. Included in this decrease was an impairment of $4.5 million in 2022.
Other income, net decreased by $16.7 million from the same period of 2021. The decrease was primarily attributable to the sale of a grain asset in Champaign, Illinois in which the Company recorded a $14.6 million gain in the prior year that did not reoccur in 2022.
Renewables
Operating results for Renewables increased by $37.0 million from the same period last year. Sales and merchandising revenues increased by $706.6 million and cost of sales and merchandising revenues increased by $655.8 million compared to prior year. As a result, gross profit increased by $50.8 million compared to prior year. The vast majority of the increase to sales and merchandising revenues and cost of sales and merchandising revenues is the result of increased ethanol and corn commodity prices as ethanol volumes sold were consistent between the current year and prior year. An improvement of gross profit from the ethanol plants of $41.6 million with favorable realized crush margins and higher corn oil volumes being the main drivers of the increase from the prior year. Also contributing to the increased gross profit was an improvement of unrealized mark-to-market adjustments of approximately $5.8 million from the prior year.
Other income increased by $17.7 million and almost all of the increase from the prior year was a result of $17.6 million in proceeds received as a part of the USDA Biofuel Producer Relief Program that was enacted as a part of the CARES Act, of which approximately $8.8 million of these proceeds were attributable to the noncontrolling interest.
Plant Nutrient
Operating results for the Plant Nutrient segment increased by $10.8 million compared to the same period in the prior year. Sales and merchandising revenues increased $211.5 million and cost of sales and merchandising revenues increased by $192.2 million resulting in increased gross profit of $19.3 million. The increase in sales and merchandising revenues and cost of sales and merchandising revenues was due to fertilizer prices more than doubling from the prior year. This increase in fertilizer prices from the same period of prior year was partially offset by a decrease in demand as volumes sold decreased by approximately 30%. Gross profit improved year-over-year due to increased margins on well-positioned inventory from the prior year representing a $46.2 million difference that was partially offset by a $27.3 million decrease in sales volumes. Ag Supply Chain led the way in 2022 with a $16.2 million increase in gross profit as a result of strong margins from well-positioned inventory in a tight supply market.
Operating, administrative and general expenses increased by $7.5 million from the prior year. Most of this increase is due to inflationary pressures, with labor costs being the single biggest driver.
The Andersons, Inc. | Q3 2022 Form 10-Q | 32
Interest expense increased by $1.9 million due to higher net working capital usage from higher commodity prices along with the rising interest rates.
Other
Results improved by $2.6 million from the same period last year. The improvement in results was primarily driven by a $2.8 million loss on a cost method investment in the prior year that did not reoccur.
Income Taxes
For the nine months ended September 30, 2022, the Company recorded income tax expense from continuing operations of $29.7 million. The Company's effective tax rate was 18.2% on income before taxes from continuing operations of $163.5 million. The difference between the 18.2% effective tax rate and the U.S. federal statutory tax rate of 21% is primarily attributable to the tax impact of non-controlling interest as well as certain discrete derivatives and hedging activities offset by state and local income taxes and nondeductible compensation.
For the nine months ended September 30, 2021, the Company recorded income tax expense from continuing operations of $18.1 million. The Company's effective tax rate was 21.5% on income from continuing operations of $84.1 million. The effective tax rate differs from the U.S. federal statutory tax rate of 21% due to the tax impact of state and local taxes and nondeductible compensation offset by non-controlling interest and certain discrete derivatives and hedging activities.
Liquidity and Capital Resources
Working Capital
At September 30, 2022, the Company had working capital from continuing operations of $944.7 million, an increase of $182.6 million from the prior year. This increase was attributable to changes in the following components of current assets from continuing operations and current liabilities from continuing operations:
| (in thousands) | September 30, 2022 | September 30, 2021 | Variance | ||||||||||||||
| Current Assets from Continuing Operations: | |||||||||||||||||
| Cash and cash equivalents | $ | 140,771 | $ | 216,874 | $ | (76,103) | |||||||||||
| Accounts receivable, net | 990,531 | 735,349 | 255,182 | ||||||||||||||
| Inventories | 1,556,426 | 1,017,804 | 538,622 | ||||||||||||||
| Commodity derivative assets – current | 502,097 | 409,647 | 92,450 | ||||||||||||||
| Other current assets | 75,402 | 92,159 | (16,757) | ||||||||||||||
| Total current assets from continuing operations | $ | 3,265,227 | $ | 2,471,833 | $ | 793,394 | |||||||||||
| Current Liabilities from Continuing Operations: | |||||||||||||||||
| Short-term debt | 652,947 | 281,199 | 371,748 | ||||||||||||||
| Trade and other payables | 930,027 | 825,923 | 104,104 | ||||||||||||||
| Customer prepayments and deferred revenue | 258,828 | 147,225 | 111,603 | ||||||||||||||
| Commodity derivative liabilities – current | 137,168 | 78,702 | 58,466 | ||||||||||||||
| Current maturities of long-term debt | 112,029 | 106,255 | 5,774 | ||||||||||||||
| Accrued taxes | 23,439 | 97,215 | (73,776) | ||||||||||||||
| Accrued expenses and other current liabilities | 206,069 | 173,215 | 32,854 | ||||||||||||||
| Total current liabilities from continuing operations | $ | 2,320,507 | $ | 1,709,734 | $ | 610,773 | |||||||||||
| Working Capital from Continuing Operations | $ | 944,720 | $ | 762,099 | $ | 182,621 | |||||||||||
Current assets from continuing operations as of September 30, 2022 increased $793.4 million in comparison to those as of September 30, 2021. This increase was noted mainly in accounts receivable, inventories and current commodity derivative assets. The increases in those accounts can largely be attributed to the significant increases in the prices of agricultural commodities, including fertilizer, that the Company transacts in the ordinary course of business from the same period of the
The Andersons, Inc. | Q3 2022 Form 10-Q | 33
prior year. The Company also opened new merchandising offices in the second half of the prior year which is contributing to the increase in working capital as there is a substantial volume of commodities held in that business in 2022.
Current liabilities from continuing operations increased $610.8 million across all financial statement line items when compared to the prior year. The increase was driven by short-term debt, trade and other payables, customer prepayments and deferred revenue, and current commodity derivative liabilities. These accounts were driven higher from the prior year as a result of higher working capital needs from the significant increase in agricultural commodity prices and the opening of the new merchandising offices in the second half of prior year.
Sources and Uses of Cash
Nine Months Ended | ||||||||||||||
| (in thousands) | September 30, 2022 | September 30, 2021 | ||||||||||||
| Net cash (used in) provided by operating activities | $ | (153,370) | $ | 119,067 | ||||||||||
| Net cash provided by investing activities | 2,919 | 519,523 | ||||||||||||
| Net cash provided by (used in) financing activities | 75,489 | (450,647) | ||||||||||||
Operating Activities
Our operating activities used cash of $153.4 million and provided cash of $119.1 million in the first nine months of 2022 and 2021, respectively. The increase in cash used was primarily due to the increased working capital needs, as discussed above, driven by significant increases in agricultural commodity prices and the new merchandising locations that were opened in the second half of 2021. When the changes in operating assets and liabilities are removed, cash provided by operating activities was slightly lower than prior year due to the timing of tax refunds and credits in the first quarter of 2021.
Investing Activities
Investing activities provided cash of $2.9 million through the first nine months of 2022 compared to cash provided of $519.5 million in the prior period. The decrease from the prior period was a result of the sale of the Rail Leasing business that provided cash of $543 million in the prior year which was partially offset by $56 million in proceeds associated to the sale of the Rail Repair business in the current year. The Company has now sold substantially all of the remaining pieces of its legacy Rail segment.
Purchases of property, plant and equipment were approximately $20 million higher than the prior year and we expect to invest approximately $100 million in property, plant and equipment in 2022 related to continuing operations.
Financing Activities
Financing activities provided cash of $75.5 million and used cash of $450.6 million for the nine months ended September 30, 2022 and 2021, respectively. This increase from the prior year was due to the significant increase in agricultural commodity prices from the prior period and the related need for short-term borrowings. The Company's short-term debt balance of $652.9 million is highly correlated to the balance of readily marketable inventories of $1,167.0 million as of September 30, 2022.
The Company is party to borrowing arrangements with a syndicate of banks that provide a total of $1,978.6 million in borrowing capacity. Of the total capacity, $328.6 million is non-recourse to the Company. As of September 30, 2022, the Company had $1,302.6 million available for borrowing with $230.4 million of that total being non-recourse to the Company.
The Company paid $18.3 million in dividends in the first nine months of 2022 compared to $17.5 million in the prior period. The Company paid dividends of $0.180 and $0.175 per common share in January, April and September of 2022 and 2021, respectively. On August 19, 2022, the Company declared a cash dividend of $0.180 per common share payable on October 21, 2022 to shareholders of record on October 3, 2022.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of working capital and a minimum ratio of owner's equity. The Company has concluded that in relation to the $65.2 million non-recourse credit agreement associated with the ELEMENT operations, it was out of compliance regarding the minimum working capital covenant as of August 31, 2022, and is virtually certain to be out of compliance for an owner's equity ratio covenant within the next 12 months. As these covenants have yet to be cured or waived, the Company classified the total $65.2 million of non-recourse debt under the ELEMENT credit agreement as a current maturity of long-term debt as of September 30, 2022. The Company is in compliance with all other covenants as of September 30, 2022. In addition, certain of our long-term borrowings
The Andersons, Inc. | Q3 2022 Form 10-Q | 34
are collateralized by first mortgages on various facilities. Our non-recourse long-term debt is collateralized by ethanol plant assets.
Because the Company is a significant borrower of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on our profitability. In addition, periods of high grain prices and/or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, the Company could receive a return of cash.
Management believes our sources of liquidity will be adequate to fund our operations, capital expenditures and service our indebtedness.
At September 30, 2022, the Company had standby letters of credit outstanding of $3.4 million.
The Andersons, Inc. | Q3 2022 Form 10-Q | 35
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes in market risk, specifically commodity and interest rate risk during the nine months ended September 30, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of September 30, 2022 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the third quarter of 2022, identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Andersons, Inc. | Q3 2022 Form 10-Q | 36
Part II. Other Information
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Except as described in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 13, “Commitments and Contingencies,” in the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims.
The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.
Item 1A. Risk Factors
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the 2021 Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. The information presented below updates, and should be read in conjunction with, the risk factors in Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Except as presented below, there were no other significant changes in the Company’s risk factors during the quarter ended September 30, 2022.
The Company faces risks related to international conflicts, such as the ongoing conflict between Russia and Ukraine, that may adversely impact the Company's financial condition or results of operations.
In late February of 2022, Russia initiated a military operation in Ukraine. The Black Sea region is a key international grain and fertilizer export market and the conflict between Russia and Ukraine could continue to disrupt supply and logistics, cause volatility in prices, and impact global margins due to increased commodity, energy, and input costs. While the Company does not have any assets or employees located in the Black Sea region, it does engage in business with parties operating in the region, including some grain originations directly from Ukrainian producers. The conflict could negatively affect our ability to secure product in this region and the credit worthiness of agricultural producers with which we do business. The Company currently does not purchase fertilizer directly from this region, however, the impact to the global fertilizer supply could put the Company’s ability to secure product at risk over time.
To the extent the conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening other risks disclosed in Part I, “Item 1A. Risk Factors” in the Company's 2021 Annual Report on Form 10-K, any of which could materially and adversely affect the Company's financial condition and results of operations. However, due to the continually evolving nature of the conflict, the potential impact that the conflict could have on such risk factors, and others that cannot yet be identified, remains uncertain. The Company continues to monitor the conflict and assess alternatives to mitigate these risks.
The Andersons, Inc. | Q3 2022 Form 10-Q | 37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| Periods | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) | ||||||||||||||||||||||
July 2022 | — | $ | — | — | $ | 100,000,000 | ||||||||||||||||||||
August 2022 | 2,595 | 36.89 | 2,595 | 99,904,266 | ||||||||||||||||||||||
September 2022 | 228,920 | 33.22 | 228,920 | 92,298,912 | ||||||||||||||||||||||
| Total | 231,515 | $ | 33.26 | 231,515 | $ | 92,298,912 | ||||||||||||||||||||
(1) As of August 20, 2021, the Company was authorized to purchase up to $100 million of the Company’s common stock (the "Repurchase Plan") on or before August 20, 2024. As of September 30, 2022, $7.7 million of the $100 million available to repurchase shares had been utilized. The Repurchase Plan does not obligate the Company to acquire any specific number of shares. Under the Repurchase Plan, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.
Item 6. Exhibits
| Exhibit Number | Description | |||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1** | ||||||||
| 101** | Inline XBRL Document Set for the Condensed Consolidated Financial Statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. | |||||||
| 104** | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. | |||||||
* Filed herewith | ||||||||
** Furnished herewith | ||||||||
Items 3, 4, and 5 are not applicable and have been omitted.
The Andersons, Inc. | Q3 2022 Form 10-Q | 38
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| THE ANDERSONS, INC. | ||||||||
| Date: November 3, 2022 | /s/ Patrick E. Bowe | |||||||
| Patrick E. Bowe | ||||||||
| President and Chief Executive Officer | ||||||||
| Date: November 3, 2022 | /s/ Brian A. Valentine | |||||||
| Brian A. Valentine | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
The Andersons, Inc. | Q3 2022 Form 10-Q | 39
ATTACHMENTS / EXHIBITS
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
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