The Andersons(ANDE) - 2020 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements Presents unaudited condensed consolidated financial statements and notes for periods ended June 30, 2020 and 2019, and December 31, 2019 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Assets/Liabilities & Equity | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :-------------------------- | :------------ | :---------------- | :------------ | | Total Assets | $3,303,989 | $3,900,741 | $3,571,859 | | Total Current Assets | $1,398,189 | $1,945,342 | $1,768,627 | | Total Liabilities | $2,171,906 | $2,705,086 | $2,551,220 | | Total Current Liabilities | $926,782 | $1,439,919 | $1,304,566 | | Total Equity | $1,132,083 | $1,195,655 | $1,020,639 | - Total assets decreased from $3,900,741 thousand at December 31, 2019, to $3,303,989 thousand at June 30, 2020, primarily driven by a significant reduction in inventories and commodity derivative assets[5] - Total liabilities decreased from $2,705,086 thousand at December 31, 2019, to $2,171,906 thousand at June 30, 2020, largely due to decreases in short-term debt, trade and other payables, and customer prepayments[8] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales and merchandising revenues | $1,890,180 | $2,325,041 | $3,743,286 | $4,301,833 | | Gross profit | $106,266 | $160,728 | $169,396 | $270,392 | | Income (loss) before income taxes | $7,832 | $40,408 | $(44,742) | $20,818 | | Net income (loss) | $20,032 | $29,411 | $(31,078) | $15,263 | | Net income (loss) attributable to The Andersons, Inc. | $30,439 | $29,888 | $(7,222) | $15,895 | - Sales and merchandising revenues decreased by $434.8 million for the three months ended June 30, 2020, compared to the same period in 2019, and by $558.5 million for the six months ended June 30, 2020, primarily due to reduced demand from the COVID-19 pandemic[10] - The company reported a net loss of $31,078 thousand for the six months ended June 30, 2020, a significant decline from a net income of $15,263 thousand in the prior year, largely influenced by the negative impact of COVID-19 on demand for gasoline, ethanol, and corn[10][123] Condensed Consolidated Statements of Comprehensive Income (Loss) Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $20,032 | $29,411 | $(31,078) | $15,263 | | Other comprehensive income (loss) | $1,404 | $(8,715) | $(19,014) | $146 | | Comprehensive income (loss) | $21,436 | $20,696 | $(50,092) | $15,409 | | Comprehensive income (loss) attributable to The Andersons, Inc. | $31,843 | $21,173 | $(26,236) | $16,041 | - Other comprehensive income (loss) significantly improved for the three months ended June 30, 2020, reporting a gain of $1,404 thousand compared to a loss of $8,715 thousand in the prior year, driven by foreign currency translation adjustments[12] - For the six months ended June 30, 2020, the company reported a comprehensive loss of $50,092 thousand, a substantial decrease from a comprehensive income of $15,409 thousand in the prior year, primarily due to a large other comprehensive loss[12] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $145,511 | $(84,847) | | Net cash used in investing activities | $(66,002) | $(271,393) | | Net cash (used in) provided by financing activities | $(105,068) | $344,410 | | Decrease in cash, cash equivalents and restricted cash | $(24,884) | $(11,506) | | Cash, cash equivalents and restricted cash at end of period | $30,011 | $11,087 | - Operating activities generated $145.5 million in cash for the six months ended June 30, 2020, a significant improvement from using $84.8 million in the prior year, mainly due to changes in working capital[15][172] - Investing activities used less cash, $66.0 million, in the first six months of 2020 compared to $271.4 million in 2019, primarily due to the absence of a large acquisition (LTG in prior year) and strategic capital spending reductions[15][173] - Financing activities shifted from providing $344.4 million in cash in 2019 to using $105.1 million in 2020, largely due to decreased proceeds from new debt issuance (LTG acquisition in prior year) and a reduction in short-term borrowings[15][174] Condensed Consolidated Statements of Equity Condensed Consolidated Statements of Equity (in thousands) | Equity Component | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :-------------------------------- | :------------ | :---------------- | :------------ | | Common shares | $138 | $137 | $137 | | Additional paid-in-capital | $343,730 | $345,359 | $331,186 | | Treasury shares, at cost | $(953) | $(7,342) | $(6,449) | | Accumulated other comprehensive loss | $(26,245) | $(7,231) | $(6,241) | | Retained earnings | $622,718 | $642,687 | $651,481 | | Total shareholders' equity of The Andersons, Inc. | $939,388 | $973,610 | $970,114 | | Noncontrolling interests | $192,695 | $222,045 | $50,525 | | Total equity | $1,132,083 | $1,195,655 | $1,020,639 | - Total equity decreased from $1,195,655 thousand at December 31, 2019, to $1,132,083 thousand at June 30, 2020, primarily due to a decrease in retained earnings and accumulated other comprehensive loss[8] - Noncontrolling interests increased significantly from $50,525 thousand at June 30, 2019, to $192,695 thousand at June 30, 2020, largely due to the TAMH merger in the fourth quarter of 2019[8][107] Notes to Condensed Consolidated Financial Statements 1. Basis of Presentation and Consolidation - The financial statements include The Andersons, Inc. and its wholly-owned and controlled subsidiaries, majority-owned subsidiaries, and variable interest entities (VIEs) where the Company is the primary beneficiary. Noncontrolling interests represent the portion not owned by the Company[23] - Investments with significant influence but not control are accounted for using the equity method. Management believes all necessary adjustments for fair presentation have been made, but results are not indicative of the full fiscal year due to seasonality[24][25] - The Company is assessing the impact of ASU 2019-12, 'Simplifying the Accounting for Income Taxes,' effective for fiscal years beginning after December 15, 2020, and does not plan to early adopt[27] 2. Inventories Major Classes of Inventories (in thousands) | Inventory Type | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :------------------------------ | :------------ | :---------------- | :------------ | | Grain and other agricultural products | $452,339 | $907,482 | $603,318 | | Frac sand and propane | $6,498 | $15,438 | $9,287 | | Ethanol and co-products | $63,195 | $95,432 | $26,185 | | Plant nutrients and cob products | $87,346 | $146,164 | $109,156 | | Railcar repair parts | $6,945 | $6,020 | $5,695 | | Total Inventories | $616,323 | $1,170,536 | $753,641 | - Total inventories decreased significantly from $1,170,536 thousand at December 31, 2019, to $616,323 thousand at June 30, 2020, primarily driven by a reduction in grain and other agricultural products[28] - For the six months ended June 30, 2020, the Company recorded a $10.9 million lower of cost or net realizable value charge due to lower ethanol market prices and decreased demand caused by the COVID-19 pandemic[29] 3. Property, Plant and Equipment Property, Plant and Equipment, Net (in thousands) | Component | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :------------------------------ | :------------ | :---------------- | :------------ | | Land | $40,188 | $40,442 | $39,241 | | Land improvements and leasehold improvements | $96,028 | $103,148 | $84,127 | | Buildings and storage facilities | $377,652 | $373,961 | $327,418 | | Machinery and equipment | $881,144 | $835,156 | $514,030 | | Construction in progress | $35,982 | $59,993 | $164,532 | | Less: accumulated depreciation | $524,977 | $474,282 | $433,521 | | Property, plant and equipment, net | $906,017 | $938,418 | $695,827 | - Property, plant and equipment, net, decreased to $906,017 thousand at June 30, 2020, from $938,418 thousand at December 31, 2019, primarily due to a reduction in construction in progress[30] - Depreciation expense on property, plant and equipment for the six months ended June 30, 2020, was $62.3 million, a significant increase from $32.7 million in the same period of 2019[30] Rail Group Assets Leased to Others, Net (in thousands) | Component | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :------------------------------ | :------------ | :---------------- | :------------ | | Rail Group assets leased to others | $742,107 | $723,004 | $688,320 | | Less: accumulated depreciation | $149,286 | $138,706 | $128,609 | | Rail Group assets, net | $592,821 | $584,298 | $559,711 | 4. Debt Short-term and Long-term Debt (in thousands) | Debt Type | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :---------------------------------------- | :------------ | :---------------- | :------------ | | Total short-term debt | $96,071 | $147,031 | $426,125 | | Total current maturities of long-term debt | $68,477 | $62,899 | $66,678 | | Total long-term debt, less: current maturities | $975,973 | $1,016,248 | $1,007,012 | | Total Debt | $1,140,521| $1,226,178 | $1,599,815| - Total short-term debt decreased significantly to $96,071 thousand at June 30, 2020, from $426,125 thousand at June 30, 2019, reflecting a substantial reduction in recourse short-term debt[34] - The Company had a total borrowing capacity of $1,690.3 million at June 30, 2020, with $1,307.1 million available for borrowing, and was in compliance with all financial covenants[34] 5. Derivatives - The Company uses exchange-traded commodity futures and options contracts and over-the-counter forward and option contracts to reduce exposure to market price risk on commodities, primarily accounting for them at estimated fair value[35][36] Net Pre-Tax Gains (Losses) on Commodity Derivatives (in thousands) | Period | 2020 (Three months) | 2019 (Three months) | 2020 (Six months) | 2019 (Six months) | | :-------------------------------------- | :------------------ | :------------------ | :---------------- | :---------------- | | Gains (losses) on commodity derivatives | $8,797 | $(13,364) | $39,757 | $57,291 | - The Company's interest rate derivatives strategy aims to stabilize interest expense and manage exposure to interest rate movements, primarily using interest rate swaps designated as cash flow hedges[50] Fair Value of Other Derivatives (in thousands) | Derivative Type | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :-------------------------------------------- | :------------ | :---------------- | :------------ | | Interest rate contracts (not designated as hedges) | $(1,727) | $(1,007) | $(10,750) | | Foreign currency contracts (not designated as hedges) | $791 | $2,742 | $(22) | | Interest rate contracts (designated as hedges) | $(33,194) | $(12,500) | $(10,587) | 6. Revenue Revenues by Accounting Standard (in thousands) | Revenue Type | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues under ASC 606 | $459,105 | $494,266 | $806,607 | $809,438 | | Revenues under ASC 842 | $24,768 | $31,836 | $50,319 | $60,704 | | Revenues under ASC 815 | $1,406,307 | $1,798,939 | $2,886,360 | $3,431,691 | | Total Revenues | $1,890,180 | $2,325,041 | $3,743,286 | $4,301,833 | - The majority of the Company's revenues are generated from contracts outside the scope of ASC 606, primarily accounted for under ASC 815 (Derivatives and Hedging) for Trade and Ethanol sales, and ASC 842 (Leases) for Rail Group leasing revenue[56] - Contract liabilities decreased from $28.5 million at December 31, 2019, to $9.7 million at June 30, 2020, mainly due to the recognition of revenue from prepayments for primary and specialty nutrients during the spring planting season[64] 7. Income Taxes Income Tax (Benefit) Provision and Effective Tax Rate | Period | Income Tax (Benefit) Provision (in thousands) | Effective Income Tax Rate | | :-------------------------------------- | :-------------------------------------------- | :------------------------ | | Three months ended June 30, 2020 | $(12,200) | 155.8% | | Three months ended June 30, 2019 | $10,997 | 27.2% | | Six months ended June 30, 2020 | $(13,664) | 30.5% | | Six months ended June 30, 2019 | $5,555 | 26.7% | - The Company recorded an income tax benefit of $12.2 million for the three months ended June 30, 2020, at an effective rate of 155.8%, a significant change from an expense of $11.0 million at 27.2% in the prior year, primarily due to tax benefits from noncontrolling interests and CARES Act net operating loss carrybacks[67] - For the six months ended June 30, 2020, an income tax benefit of $13.7 million was recorded at an effective rate of 30.5%, compared to an expense of $5.6 million at 26.7% in the prior year, driven by tax benefits from current period losses and CARES Act provisions[68] - The CARES Act provided significant tax benefits, including allowing net operating losses from 2018-2020 to be carried back five years and increasing the base for interest deductibility, resulting in a $10.3 million financial statement benefit[70][71] 8. Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) Components (in thousands) | Component | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :-------------------------------------- | :------------ | :---------------- | :------------ | | Cash Flow Hedges | $(24,966) | $(7,231) | $(9,700) | | Foreign Currency Translation Adjustment | $(2,325) | $1,065 | $(976) | | Investment in Convertible Preferred Securities | $258 | $258 | $258 | | Defined Benefit Plan Items | $788 | $889 | $4,177 | | Total Accumulated Other Comprehensive Income (Loss) | $(26,245) | $(7,231) | $(6,241) | - Accumulated other comprehensive loss increased significantly to $(26,245) thousand at June 30, 2020, from $(7,231) thousand at December 31, 2019, primarily driven by a substantial increase in cash flow hedge losses[72] - Net current-period other comprehensive loss for the six months ended June 30, 2020, was $(19,014) thousand, a sharp decline from a gain of $146 thousand in the prior year, mainly due to cash flow hedge activity[72][73] 9. Earnings Per Share Earnings Per Share (in thousands, except per common share data) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to The Andersons, Inc. | $30,439 | $29,888 | $(7,222) | $15,895 | | Weighted average shares outstanding – basic | 32,932 | 32,521 | 32,876 | 32,511 | | Earnings per common share – basic | $0.92 | $0.92 | $(0.22) | $0.49 | | Weighted average shares outstanding – diluted | 33,009 | 32,733 | 32,876 | 33,071 | | Earnings per common share – diluted | $0.92 | $0.91 | $(0.22) | $0.48 | - Basic and diluted EPS for the three months ended June 30, 2020, remained flat at $0.92 compared to the prior year[78] - For the six months ended June 30, 2020, the Company reported a basic and diluted EPS loss of $(0.22), a significant decline from EPS of $0.49 and $0.48 respectively in the prior year, due to a net loss attributable to The Andersons, Inc[78] 10. Fair Value Measurements Fair Value Measurements (in thousands) | Assets (liabilities) | June 30, 2020 (Total) | December 31, 2019 (Total) | June 30, 2019 (Total) | | :-------------------------------- | :-------------------- | :------------------------ | :-------------------- | | Commodity derivatives, net | $45,916 | $61,365 | $165,822 | | Provisionally priced contracts | $(57,036) | $(186,651) | $(39,279) | | Convertible preferred securities | $8,654 | $8,404 | $8,404 | | Other assets and liabilities | $(30,820) | $(4,038) | $(5,466) | | Total | $(33,286) | $(120,920) | $129,481 | - The fair value of commodity derivatives, net, decreased from $61,365 thousand at December 31, 2019, to $45,916 thousand at June 30, 2020[79] - Provisionally priced contracts liabilities significantly decreased from $(186,651) thousand at December 31, 2019, to $(57,036) thousand at June 30, 2020[79] - The fair value of long-term debt, including current maturities, was $1,090,059 thousand at June 30, 2020, with a fair value in excess of carrying value of $37,963 thousand[91] 11. Related Parties - The Company engages in related party transactions, primarily with minority shareholders of its ethanol operations and equity method investments, on an arms-length basis[92] Related Party Transactions (in thousands) | Transaction Type | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales revenues | $29,659 | $57,854 | $84,353 | $119,022 | | Service fee revenues | — | $4,052 | — | $8,163 | | Purchases of product and capital assets | $6,419 | $176,442 | $21,996 | $345,671 | | Lease income | $151 | $1,645 | $298 | $3,309 | | Labor and benefits reimbursement | — | $3,602 | — | $7,460 | - Service fee revenues and labor and benefits reimbursements from related parties were eliminated in consolidation in 2020 due to the TAMH merger[92] 12. Segment Information - The Company operates in four reportable business segments: Trade, Ethanol, Plant Nutrient, and Rail, with an 'Other' category for corporate costs[94] - In January 2020, the DDG business was moved from the Trade group to the Ethanol group as part of internal restructuring, with prior year results recast to reflect this change[94] Revenues from External Customers by Segment (in thousands) | Segment | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Trade | $1,351,168 | $1,700,581 | $2,729,209 | $3,238,267 | | Ethanol | $223,745 | $310,867 | $536,784 | $580,033 | | Plant Nutrient | $279,825 | $270,577 | $404,738 | $399,102 | | Rail | $35,442 | $43,016 | $72,555 | $84,431 | | Total | $1,890,180 | $2,325,041 | $3,743,286 | $4,301,833 | Income (Loss) Before Income Taxes, Net of Noncontrolling Interests by Segment (in thousands) | Segment | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Trade | $393 | $22,631 | $(9,591) | $4,729 | | Ethanol | $868 | $3,749 | $(23,108) | $6,760 | | Plant Nutrient | $19,407 | $15,903 | $18,215 | $11,974 | | Rail | $2,606 | $3,180 | $3,613 | $7,492 | | Other | $(5,035) | $(4,578) | $(10,015) | $(9,505) | | Total | $18,239 | $40,885 | $(20,886) | $21,450 | 13. Commitments and Contingencies - The Company is involved in various legal proceedings in the ordinary course of business and establishes reserves for probable and estimable claims[101] - In the first quarter of 2019, a $5.0 million reserve was recorded for a non-regulatory litigation claim related to penalties and fines paid by a previously unconsolidated subsidiary for trading activity[103] - Management believes it is unlikely that the results of current legal proceedings will be material, and estimated losses for other reasonably possible claims are not material[101][103] 14. Supplemental Cash Flow Information Supplemental Cash Flow Information (in thousands) | Item | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Interest paid | $27,168 | $30,287 | | Dividends declared not yet paid | $5,764 | $5,530 | | Capital projects incurred but not yet paid | $4,070 | $15,317 | | Equity issued in conjunction with acquisition | — | $127,841 | | Removal of pre-existing equity method investment | — | $(159,459) | - Interest paid decreased to $27.2 million for the six months ended June 30, 2020, from $30.3 million in the prior year[104] - Capital projects incurred but not yet paid significantly decreased to $4.1 million in 2020 from $15.3 million in 2019[104] 15. Business Acquisition - On October 1, 2019, The Andersons merged several ethanol entities into a new legal entity, The Andersons Marathon Holdings LLC (TAMH), with The Andersons owning 50.1% and Marathon owning 49.9%[107] - Total consideration transferred by the Company for the TAMH acquisition was $182.9 million, including non-cash consideration and equity values of previously mentioned LLCs[107][108] - The acquisition resulted in $3.1 million of goodwill, primarily attributable to expected synergies and the assembled workforce of TAMH, which is not deductible for income tax purposes[110] Pro Forma Financial Information (Unaudited) (in thousands) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $1,890,180 | $2,377,250 | $3,743,286 | $4,408,760 | | Net income (loss) | $20,032 | $24,975 | $(31,078) | $9,747 | 16. Goodwill - In the first quarter of 2020, the Company reorganized its structure, moving the Distillers Dried Grains (DDG) business from the Trade to the Ethanol segment, resulting in goodwill reassignment[115] - An interim review of goodwill carrying value was performed for the Trade and Ethanol segments, both pre and post-reorganization, with no impairment indicated[115] Changes in Carrying Amount of Goodwill by Reportable Segment (in thousands) | Segment | Balance as of January 1, 2020 | Reorganization | Acquisitions | Balance as of June 30, 2020 | | :------------- | :---------------------------- | :------------- | :----------- | :-------------------------- | | Trade | $127,781 | $(5,714) | — | $122,067 | | Ethanol | $2,726 | $5,714 | $349 | $8,789 | | Plant Nutrient | $686 | — | — | $686 | | Rail | $4,167 | — | — | $4,167 | | Total | $135,360 | — | $349 | $135,709 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of financial condition and operations, covering COVID-19 impact, liquidity, and critical accounting policies Executive Overview - The Company's operations are organized into four reportable business segments: Trade, Ethanol, Plant Nutrient, and Rail, with selling prices generally moving in relation to purchase prices for agricultural commodities[120][121] - Management concluded that no goodwill impairment triggering event occurred as of June 30, 2020, despite shareholders' equity exceeding market capitalization, believing the share price does not accurately reflect its value given the long-term positive outlook in agriculture[122] Recent Developments - The COVID-19 pandemic significantly impacted the global economy and the Company's Rail, Ethanol, and Trade Groups, leading to reduced demand for gasoline, ethanol, and corn[123] - The Company idled its ethanol plants for extended maintenance shutdowns but all resumed operations in the second quarter, operating at approximately 50% capacity[123][130] - As a critical infrastructure industry, The Andersons implemented measures like remote work, restricted travel, and enhanced hygiene to ensure service availability and employee safety, with no material effect on internal controls[124][181] Trade Group - The Trade Group's second-quarter results were negatively impacted by the prior year harvest, COVID-related demand decreases in the Eastern Corn Belt, compressed margins, and lower originations[127] - Agricultural inventories on hand at June 30, 2020, were 74.4 million bushels, down from 96.1 million bushels at June 30, 2019[128] - The group anticipates improved profitability in late 2020 and into 2021 due to an expected large corn harvest[129] Ethanol Group - The Ethanol Group's second-quarter results were profitable as margins improved in May and were strong by quarter-end, with all five plants resuming operations at approximately 50% capacity[130] Ethanol and Related Co-products Volumes (in thousands) | Product | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Ethanol (gallons shipped) | 119,528 | 130,297 | 266,873 | 261,325 | | E-85 (gallons shipped) | 4,396 | 13,959 | 13,489 | 22,892 | | Corn Oil (pounds shipped) | 20,968 | 4,821 | 50,262 | 9,754 | | DDG (tons shipped) | 334 | 405 | 964 | 804 | - Consolidated volumes for ethanol, DDG, and corn oil now include former unconsolidated LLCs merged into TAMH in Q4 2019[133] Plant Nutrient Group - The Plant Nutrient Group's second-quarter results improved due to substantially increased volumes from a more normal planting season, despite lower Specialty Liquids volumes and negative impacts from COVID-19 on industrial liquids demand[134] Tons of Product Sold (in thousands) | Product Type | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Ag Supply Chain | 690 | 523 | 904 | 699 | | Specialty Liquids | 121 | 133 | 196 | 196 | | Engineered Granules | 151 | 153 | 273 | 273 | | Total tons | 962 | 809 | 1,373 | 1,168 | - The near-term outlook for the group is cautious due to low corn prices and COVID-related demand decreases in the industrial sector, which may offset cost reductions and new business opportunities[137] Rail Group - The Rail Group's results declined due to lower car sale income, fewer cars on lease, lower average lease rates, and decreased utilization, as railcar loadings continued to fall[137] - Average utilization rates decreased from 94.6% in Q2 2019 to 88.3% in Q2 2020, impacted by headwinds in the sand and ethanol markets[137] - The COVID-19 pandemic caused the idling of nearly one-third of the North American railcar fleet, leading to lower year-to-date railcar loadings and expected continued negative impacts on lease renewals, rates, and repair demand[138] Other - The 'Other' category includes corporate income and expenses, costs for support functions, and unallocated expenses like a portion of the ERP project and consolidation adjustments[139] - This segment captured $2.3 million of severance costs related to internal restructuring for the period ended June 30, 2020[139] Operating Results Sales and Merchandising Revenues by Segment (in thousands) | Segment | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Trade | $1,351,168 | $1,700,581 | $2,729,209 | $3,238,267 | | Ethanol | $223,745 | $310,867 | $536,784 | $580,033 | | Plant Nutrient | $279,825 | $270,577 | $404,738 | $399,102 | | Rail | $35,442 | $43,016 | $72,555 | $84,431 | | Total | $1,890,180 | $2,325,041 | $3,743,286 | $4,301,833 | Gross Profit by Segment (in thousands) | Segment | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Trade | $59,382 | $100,666 | $121,848 | $168,063 | | Ethanol | $(2,599) | $6,492 | $(31,998) | $11,892 | | Plant Nutrient | $38,765 | $38,798 | $59,129 | $59,732 | | Rail | $10,718 | $14,772 | $20,417 | $30,705 | | Total | $106,266 | $160,728 | $169,396 | $270,392 | - Trade Group operating results declined by $22.2 million for the three months and $14.3 million for the six months ended June 30, 2020, primarily due to reduced corn basis appreciation and headwinds in sand operations from decreased oil demand[142][156] - Ethanol Group operating results declined by $2.9 million for the three months and $29.9 million for the six months ended June 30, 2020, due to decreased driving demand from COVID-19, leading to an oversupply of ethanol and negative margins[147][161] - Plant Nutrient Group operating results increased by $3.5 million for the three months and $6.2 million for the six months ended June 30, 2020, driven by increased volumes from a more normal planting season, despite flat gross profit due to lower margins[150][164] - Rail Group operating results declined by $0.6 million for the three months and $3.9 million for the six months ended June 30, 2020, primarily due to decreases in leasing, car sale, and repair revenues, coupled with lower utilization rates[152][166] - Income tax benefit for the three months ended June 30, 2020, was $12.2 million (155.8% effective rate), compared to an expense of $11.0 million (27.2% effective rate) in 2019, largely due to non-deductible losses from noncontrolling interests in Ethanol and NOL carryback tax savings from the CARES Act[154][155] Liquidity and Capital Resources Working Capital Components (in thousands) | Component | June 30, 2020 | June 30, 2019 | Variance | | :------------------------ | :------------ | :------------ | :------- | | Total Current Assets | $1,398,189 | $1,768,627 | $(370,438) | | Total Current Liabilities | $926,782 | $1,304,566 | $(377,784) | | Working Capital | $471,407 | $464,061 | $7,346 | - Working capital increased by $7.3 million to $471.4 million at June 30, 2020, compared to $464.1 million at June 30, 2019, driven by a larger decrease in current liabilities than current assets[170] - Operating activities provided $145.5 million in cash for the first six months of 2020, a significant improvement from using $84.8 million in 2019, primarily due to changes in working capital[171][172] - Investing activities used $66.0 million in cash in 2020, down from $271.4 million in 2019, due to the absence of a large acquisition and strategic capital spending reductions[171][173] - Financing activities used $105.1 million in cash in 2020, a decrease from providing $344.4 million in 2019, mainly due to lower new debt proceeds and reduced short-term borrowings[171][174] - The Company expects to spend approximately $14.1 million on railcar purchases and modifications, and $100.0 million on property, plant, and equipment in its base business for 2020[173] - The Company believes its sources of liquidity are adequate to fund operations, capital expenditures, and service indebtedness, despite negative impacts from the COVID-19 pandemic on operating cash flows[178] Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes in market risk, including commodity and interest rate risk, were identified during the six months ended June 30, 2020 - No material changes in market risk, including commodity and interest rate risk, were identified during the six months ended June 30, 2020[179] Item 4. Controls and Procedures Confirms effective disclosure controls and procedures, with no material changes in internal control over financial reporting despite COVID-19 remote work - The Company's disclosure controls and procedures were effective as of June 30, 2020, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[180] - No material changes in internal control over financial reporting occurred during the second quarter of 2020, even with the majority of the workforce shifting to remote work due to the COVID-19 pandemic[181] PART II. OTHER INFORMATION Item 1. Legal Proceedings Company faces ordinary legal proceedings; no material loss expected beyond accruals, and Q2 2020 settlements had no material impact - The Company is involved in legal proceedings, but management believes it's unlikely to incur a material loss greater than recorded accruals for asserted claims[183] - Legal matters settled during the second quarter of 2020 did not individually or in aggregate have a material impact on the Company's financial condition or operating results[184] Item 1A. Risk Factors Risk factors unchanged from 2019 Form 10-K, except for significant and unpredictable negative impacts of the COVID-19 pandemic - No material changes to risk factors since the 2019 Form 10-K, except for the COVID-19 pandemic[185] - The COVID-19 pandemic's impacts on the Company's business and operating results are unpredictable, potentially affecting demand, commodity prices, freight transport, facility operations, and employee duties[186] - The Company continues to monitor the situation and may alter business operations as required by authorities or deemed in the best interest of stakeholders, with uncertain potential effects on future results[187] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchases during Q2 2020, primarily shares acquired from employees for tax withholding, not part of publicly announced plans Common Shares Purchased (Three months ended June 30, 2020) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------- | :------------------------------- | :--------------------------- | | April 2020 | 25,903 | $18.74 | | May 2020 | 697 | $12.05 | | June 2020 | 2,093 | $13.71 | | Total | 28,693 | $18.21 | - Shares were acquired from employees to satisfy tax withholding obligations, not as part of publicly announced buyback programs[190] Item 4. Mine Safety Disclosure Affirms commitment to occupational health and safety, aiming for zero injuries; required mine safety results are in Exhibit 95.1 of Form 10-Q - The Company is committed to achieving zero injuries and incidents through proactive safety measures, standards, and employee training[191] - Mine safety results, as required by the Dodd-Frank Act, are included in Exhibit 95.1 of this Quarterly Report on Form 10-Q[192] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including loan/credit agreement amendments, CEO/CFO certifications, mine safety disclosure, and XBRL documents - Key exhibits include First and Second Amendments to Loan/Credit Agreements, CEO/CFO Certifications (Rule 13(a)-14(a)/15d-14(a) and 18 U.S.C. Section 1350), Mine Safety Disclosure, and Inline XBRL Document Sets[194]