The Andersons(ANDE) - 2020 Q4 - Annual Report

PART I. Item 1. Business The Andersons, Inc. is a diversified agricultural company operating in Trade, Ethanol, Plant Nutrient, and Rail sectors, providing commodity merchandising, ethanol production, plant nutrients, and railcar leasing services - The Company is a diversified agricultural entity with operations in Trade, Ethanol, Plant Nutrient, and Rail sectors, founded in Maumee, Ohio in 1947[7] - The Trade Group focuses on logistics and merchandising of commodities like whole grains, feed ingredients, frac sand, and domestic fuel products, operating grain elevators across the U.S. and Canada. It manages futures price risk using exchange-traded contracts[9][13] - The Ethanol Group produces, purchases, and sells ethanol and co-products, co-owning five ethanol plants. In 2019, it merged several LLCs into The Andersons Marathon Holdings LLC (TAMH), resulting in consolidation of TAMH's results[18][20] - The Plant Nutrient Group manufactures and distributes agricultural and related plant nutrients, corncob-based products, and pelleted lime/gypsum, reorganized into Ag Supply Chain, Engineered Granules, and Specialty Liquids divisions in 2020[22][23][24][25] - The Rail segment leases various types of railcars and locomotives, operates a nationwide network of railcar repair shops, and offers fleet management services[26] - As of December 31, 2020, the company had 2,359 employees across 141 locations, emphasizing safety, employee engagement, talent development, and competitive compensation/benefits. The company implemented various measures in response to COVID-19, including remote work and extended sick pay[31][32][33] - The company is subject to various government regulations, including USDA grain standards, FDA bioterrorism prevention, and environmental protection laws, with compliance not materially affecting earnings in 2020[34][35][36] Item 1A. Risk Factors The company faces risks from the COVID-19 pandemic, commodity price volatility, regulatory changes, indebtedness, and operational hazards - The COVID-19 pandemic has adversely affected the company's business, particularly ethanol demand due to travel restrictions, and its full impact remains uncertain[39][40][41] - The Trade, Ethanol, and Plant Nutrient segments are sensitive to commodity price fluctuations (corn, natural gas, gasoline/oil, frac sand, potash, phosphate, nitrogen), which can impact profitability and liquidity, despite efforts to manage risk with derivative instruments[43][44][45][46][47][48][49][50] - Operating in highly regulated industries (environmental, agricultural production, trade, rail) exposes the company to risks from changes in government regulations, trade policies, and potential non-compliance costs[51][52][53][54][55][56][58] - Significant inventory levels across all businesses expose the company to risks of damage or obsolescence, which could decrease value and profit margins[59][60] - The company's substantial indebtedness could negatively affect its financial condition and liquidity, with compliance to debt covenants dependent on factors beyond its control[61][62] - Operational hazards such as grain dust explosions, fires, chemical spills, and transportation accidents pose significant safety risks and could lead to unexpected costs and liabilities[72][73] - Information technology systems are critical, and limitations, failures, or external threats (cyberattacks, data breaches) could disrupt operations, lead to legal/financial exposure, and damage reputation. The ongoing ERP system implementation also carries risks of cost overruns and operational flaws[74][75][76][77][80] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - The Company has no unresolved staff comments[86] Item 2. Properties The company's properties include agriculture and ethanol facilities, grain storage, fertilizer warehouses, and a diversified rail fleet - The Company's Trade facilities, primarily concrete and steel tanks, comprise approximately 84% owned storage capacity, with the remaining 16% leased. Plant Nutrient properties are 99% owned, consisting mainly of fertilizer warehouse and formulation facilities[88] Trade Grain Storage, Ethanol Nameplate Capacity, and Plant Nutrient Storage by Location | Location | Trade Grain Storage (bushels) | Ethanol Nameplate Capacity (gallons) | Dry Fertilizer Storage (tons) | Plant Nutrient Liquid Fertilizer Storage (tons) | | :------------ | :---------------------------- | :----------------------------------- | :---------------------------- | :---------------------------------------------- | | Canada | 22,578 | — | — | — | | Colorado | 1,586 | — | — | — | | Idaho | 16,655 | — | — | — | | Illinois | 16,164 | — | 56 | 11 | | Indiana | 21,690 | 110,000 | 132 | 134 | | Iowa | — | 55,000 | — | 65 | | Kansas | — | 70,000 | — | — | | Kentucky | 1,410 | — | — | — | | Louisiana | 24,948 | — | — | — | | Michigan | 28,572 | 130,000 | 66 | 46 | | Minnesota | 1,779 | — | — | 47 | | Nebraska | 18,414 | — | — | 45 | | Ohio | 42,151 | 110,000 | 182 | 72 | | Puerto Rico | — | — | — | 11 | | Texas | 6,152 | — | — | — | | Wisconsin | — | — | 27 | 78 | | Total | 202,099 | 475,000 | 463 | 509 | Rail Fleet Composition | Equipment | Number of Units | Percentage of Fleet | | :------------------------------------------ | :-------------- | :------------------ | | Covered Hoppers | 14,760 | 63.6% | | Tanks | 4,459 | 19.2% | | Gondolas | 1,069 | 4.6% | | Open-top Hoppers | 836 | 3.6% | | Boxcars | 777 | 3.3% | | Pressure Differential Covered Hoppers | 771 | 3.3% | | Flat Cars | 514 | 2.2% | | Locomotives | 23 | 0.1% | | Other | 23 | 0.1% | | Total | 23,232 | 100.0% | - The Rail segment operates 28 railcar repair facilities nationwide[93] Item 3. Legal Proceedings The company is involved in various legal and regulatory proceedings, accruing liabilities for probable losses, with no material impact expected beyond current accruals - The Company is subject to various claims and suits, including environmental, employment, and contractual disputes, accruing liabilities when losses are probable and estimable[94] - Management believes current legal proceedings are unlikely to result in material liabilities beyond existing accruals, though future claims could have an adverse effect[94] Item 4. Mine Safety The company prioritizes employee health and safety, aiming for zero injuries through prevention and training, with mine safety results reported as required - The Company prioritizes occupational health and safety, aiming for zero injuries and incidents through proactive prevention, established standards, and intensive employee training[95] - Mine safety results for locations covered by the Dodd-Frank Act are included in Exhibit 95 of the Annual Report[96] PART II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common shares trade on Nasdaq, with consistent quarterly dividends and share repurchases primarily for employee tax obligations - The Andersons, Inc. common shares trade on the Nasdaq Global Select Market under the symbol 'ANDE'[98] - As of February 12, 2021, there were 1,034 shareholders of record and approximately 13,291 beneficial shareholders[99] Quarterly Dividends Paid (2019-2021) | Payment Date | Amount ($) | | :----------- | :----- | | 1/23/2019 | $0.170 | | 4/22/2019 | $0.170 | | 7/22/2019 | $0.170 | | 10/22/2019 | $0.170 | | 1/23/2020 | $0.175 | | 4/22/2020 | $0.175 | | 7/22/2020 | $0.175 | | 10/22/2020 | $0.175 | | 1/20/2021 | $0.175 | Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Number of Shares Purchased | Average Price Paid Per Share ($) | | :------------ | :------------------------------- | :--------------------------- | | October 2020 | 3,066 | $19.17 | | November 2020 | 692 | $21.78 | | December 2020 | 2,718 | $24.08 | | Total | 6,476 | $21.51 | Note: These purchases were primarily for employee tax withholding obligations, not publicly announced plans. Cumulative Total Shareholder Returns (2015-2020) - $100 Initial Investment | Index | 2015 Base ($) | 2016 ($) | 2017 ($) | 2018 ($) | 2019 ($) | 2020 ($) | | :-------------------- | :-------- | :---- | :----- | :----- | :----- | :----- | | The Andersons, Inc. | $100.00 | $143.88 | $102.20 | $100.03 | $86.83 | $87.47 | | NASDAQ U.S. | $100.00 | $108.87 | $141.13 | $137.12 | $187.44 | $271.64 | | Peer Group Index | $100.00 | $126.88 | $131.59 | $118.95 | $134.99 | $154.05 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews the company's financial condition and operational performance, detailing segment results, liquidity, capital resources, and critical accounting estimates - The global emergence of COVID-19 significantly impacted the global economy in 2020, reducing demand for gasoline, ethanol, and corn, which negatively affected the Trade, Ethanol, and Rail Groups[111] - The company, designated as a critical infrastructure industry, implemented measures like remote work, travel restrictions, and enhanced safety protocols to ensure service availability and employee safety during the pandemic[113] - Management believes the company's share price does not accurately reflect its current value, despite its total shareholders' equity exceeding market capitalization, citing a positive long-term outlook for the agriculture space[110] Operating Results The company reported a consolidated net loss in 2020, primarily due to declines in Ethanol and Rail segments from COVID-19, despite improvements in Plant Nutrient and Trade Consolidated Statements of Operations Summary (in thousands) | Metric | 2020 | 2019 | Change (2020 vs 2019) | | :-------------------------------- | :---------- | :---------- | :-------------------- | | Sales and merchandising revenues | $8,208,436 | $8,170,191 | +$38,245 | | Cost of sales and merchandising | $7,803,514 | $7,652,299 | +$151,215 | | Gross profit | $404,922 | $517,892 | -$112,970 | | Operating, admin & general expenses | $399,207 | $436,842 | -$37,635 | | Asset impairment | — | $41,212 | -$41,212 | | Interest expense, net | $51,275 | $59,691 | -$8,416 | | Equity in earnings of affiliates | $638 | $(7,359) | +$7,997 | | Gain from remeasurement of equity | — | $35,214 | -$35,214 | | Other income, net | $20,448 | $20,109 | +$339 | | Income (loss) before income taxes | $(24,474) | $28,111 | -$52,585 | | Income tax provision (benefit) | $(10,259) | $13,051 | -$23,310 | | Net income (loss) | $(14,215) | $15,060 | -$29,275 | | Net income attributable to The Andersons, Inc. | $7,710 | $18,307 | -$10,597 | | Basic EPS | $0.23 | $0.56 | -$0.33 | | Diluted EPS | $0.23 | $0.55 | -$0.32 | - Trade Group operating results increased $42.0 million year-over-year, primarily due to the absence of $38.5 million in asset impairments from 2019. However, gross profit decreased by $50.9 million due to weak 2019 harvest carryover in grain assets and lower wheat opportunities, coupled with a $15.2 million reduction from frac sand facility shutdowns[133][134] - Ethanol Group operating results decreased $76.3 million, with gross profit down $50.8 million due to significantly lower margins and mark-to-market losses as corn prices outpaced ethanol price increases, a direct result of decreased demand from the COVID-19 pandemic[136] - Plant Nutrient Group operating results increased $6.9 million, driven by a $7.1 million increase in gross profit from higher volumes due to more normal planting conditions in 2020 compared to the wet 2019 season[138] - Rail segment operating results decreased $12.5 million, with revenues down $23.1 million due to lower average lease rates, reduced North American railcar loadings, and fewer car sales[140] - The company recorded an income tax benefit of $10.3 million in 2020 (41.9% effective rate) compared to an expense of $13.1 million in 2019 (46.4% effective rate), primarily due to the current period loss before taxes and benefits from net operating loss carrybacks under the CARES Act[143] Liquidity and Capital Resources The company experienced decreased working capital in 2020, with operating activities using cash, reduced investing, and significant financing cash, while maintaining substantial borrowing capacity Working Capital Summary (in thousands) | Metric | December 31, 2020 | December 31, 2019 | Variance | | :-------------------------------- | :---------------- | :---------------- | :---------- | | Cash, cash equivalents & restricted cash | $29,123 | $54,895 | $(25,772) | | Accounts receivable, net | $659,834 | $536,367 | $123,467 | | Inventories | $1,300,693 | $1,170,536 | $130,157 | | Commodity derivative assets – current | $320,706 | $107,863 | $212,843 | | Other current assets | $106,053 | $75,681 | $30,372 | | Total current assets | $2,416,409 | $1,945,342 | $471,067 | | Short-term debt | $403,703 | $147,031 | $256,672 | | Trade and other payables | $957,683 | $873,081 | $84,602 | | Customer prepayments & deferred revenue | $180,160 | $133,585 | $46,575 | | Commodity derivative liabilities – current | $146,990 | $46,942 | $100,048 | | Accrued expenses & other current liabilities | $167,671 | $176,381 | $(8,710) | | Current maturities of long-term debt | $75,475 | $62,899 | $12,576 | | Total current liabilities | $1,931,682 | $1,439,919 | $491,763 | | Working capital | $484,727 | $505,423 | $(20,696) | - Operating activities used $74.4 million in cash in 2020, a significant change from $348.6 million provided in 2019, primarily due to increases in working capital accounts driven by higher commodity prices and lower operating results[147] - Investing activities used $86.8 million in 2020, down from $325.0 million in 2019, reflecting a strategic focus on reduced capital spending to conserve cash and pay down long-term debt, as well as significant prior year costs for the bio-refinery facility[148] - Net cash provided by financing activities increased to $136.3 million in 2020 from $8.7 million in 2019, largely due to increased short-term debt for working capital needs as commodity prices rose, partially offset by reductions in long-term debt[152] - As of December 31, 2020, the company had $868.4 million available for borrowing under its $1.37 billion total short and long-term borrowing capacity[153] Future Contractual Cash Obligations (in thousands, as of Dec 31, 2020) | Obligation Type | Less than 1 year | 1-3 years | 3-5 years | After 5 years | Total | | :------------------------------ | :--------------- | :---------- | :---------- | :------------ | :------------ | | Long-term debt, recourse | $69,037 | $122,208 | $188,202 | $468,203 | $847,650 | | Long-term debt, non-recourse | $6,438 | $27,110 | $85,372 | $32,479 | $151,399 | | Interest obligations | $25,245 | $44,466 | $32,185 | $44,107 | $146,003 | | Operating leases | $21,262 | $25,087 | $7,785 | $7,067 | $61,201 | | Purchase commitments | $3,096,336 | $167,280 | — | — | $3,263,616 | | Retiree healthcare programs | $2,324 | $3,118 | $3,044 | $27,947 | $36,433 | | Total contractual cash obligations | $3,220,642 | $389,269 | $316,588 | $579,803 | $4,506,302 | - The Rail segment utilizes off-balance sheet financing through sale-leaseback and non-recourse lease transactions, with 324 railcars considered off-balance sheet as of December 31, 2020[160] Critical Accounting Estimates Financial statements involve significant management estimates for inventories, derivatives, asset impairment, business combinations, and uncertain tax positions - The company's critical accounting estimates include readily marketable inventories (RMI) and commodity derivative contracts, which are marked to market at fair value, adjusted for local markets and non-performance risk[163][164] - Goodwill is tested for impairment annually (October 1) or more frequently, using a quantitative approach based on estimated future cash flows and market multiples. No goodwill impairment was indicated in 2020, but Ethanol, Grain Storage and Merchandising (GSM), and Food and Specialty Ingredients (FSI) reporting units have the greatest risk of future impairment[165][166][168][169][170][418] - Accounting for business combinations requires significant estimates for fair value of acquired assets and liabilities, and useful lives of intangible assets, relying on future cash flows, attrition rates, and discount rates[172][173] - Uncertain tax positions involve significant judgment, with $44.4 million in unrecognized tax benefits as of December 31, 2020, primarily related to Federal Research and Development Credits[174][335] Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from commodity price and interest rate fluctuations, managed with derivatives, with sensitivity analyses indicating potential losses - The company's market risk exposure stems from adverse changes in commodity prices and interest rates[175] Commodity Price Market Risk (in thousands) | Metric | December 31, 2020 | December 31, 2019 | | :---------------- | :---------------- | :---------------- | | Net commodity position | $(14,093) | $(8,969) | | Market risk (10% adverse change) | $1,409 | $896 | - The company uses currency exchange contracts to minimize foreign currency exchange rate fluctuations, primarily for the British pound, Mexican peso, and Canadian dollar, with a 10% adverse change in rates not expected to be material[178] Interest Rate Market Risk (in thousands) | Metric | December 31, 2020 | December 31, 2019 | | :----------------------------------- | :---------------- | :---------------- | | Fair value of long-term debt | $1,026,881 | $1,096,010 | | Carrying value less fair value | $27,832 | $8,257 | | Market risk (0.5% interest rate decrease) | $9,891 | $7,573 | Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including balance sheets, statements of operations, cash flows, and equity, with detailed notes on accounting policies, debt, derivatives, and segment information - Deloitte & Touche LLP provided an unqualified opinion on the company's consolidated financial statements and internal control over financial reporting as of December 31, 2020[186][188] - A Critical Audit Matter was identified regarding goodwill for the Grain Storage and Merchandising (GSM) and Food and Specialty Ingredients (FSI) reporting units, due to the significant judgments involved in estimating their business enterprise value (BEV), particularly the weighted-average cost of capital[192][193][194] Consolidated Balance Sheets (in thousands) | Asset/Liability Category | December 31, 2020 | December 31, 2019 | | :-------------------------------- | :---------------- | :---------------- | | Assets | | | | Cash, cash equivalents and restricted cash | $29,123 | $54,895 | | Accounts receivable, net | $659,834 | $536,367 | | Inventories | $1,300,693 | $1,170,536 | | Commodity derivative assets – current | $320,706 | $107,863 | | Other current assets | $106,053 | $75,681 | | Total current assets | $2,416,409 | $1,945,342 | | Goodwill | $135,709 | $135,360 | | Other intangible assets, net | $142,940 | $175,312 | | Right of use assets, net | $56,031 | $76,401 | | Other assets | $49,907 | $45,610 | | Total other assets | $384,587 | $432,683 | | Rail assets leased to others, net | $591,946 | $584,298 | | Property, plant and equipment, net | $879,179 | $938,418 | | Total assets | $4,272,121 | $3,900,741 | | Liabilities and equity | | | | Short-term debt | $403,703 | $147,031 | | Trade and other payables | $957,683 | $873,081 | | Customer prepayments and deferred revenue | $180,160 | $133,585 | | Commodity derivative liabilities – current | $146,990 | $46,942 | | Current maturities of long-term debt | $75,475 | $62,899 | | Accrued expenses and other current liabilities | $167,671 | $176,381 | | Total current liabilities | $1,931,682 | $1,439,919 | | Long-term lease liabilities | $37,177 | $51,091 | | Long-term debt, less current maturities | $916,540 | $1,016,248 | | Deferred income taxes | $170,147 | $146,155 | | Other long-term liabilities | $55,915 | $51,673 | | Total liabilities | $3,111,461 | $2,705,086 | | Total shareholders' equity of The Andersons, Inc. | $961,891 | $973,610 | | Noncontrolling interests | $198,769 | $222,045 | | Total equity | $1,160,660 | $1,195,655 | | Total liabilities and equity | $4,272,121 | $3,900,741 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2020 | 2019 | 2018 | | :----------------------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by (used in) operating activities | $(74,432) | $348,562 | $(35,519) | | Net cash used in investing activities | $(86,756) | $(325,032) | $(185,993) | | Net cash provided by financing activities | $136,296 | $8,707 | $209,186 | | Effect of exchange rates on cash | $(880) | $65 | — | | Increase (decrease) in cash | $(25,772) | $32,302 | $(12,326) | | Cash, cash equivalents and restricted cash at end of year | $29,123 | $54,895 | $22,593 | 1. Summary of Significant Accounting Policies This note outlines fundamental accounting principles, covering consolidation, estimates, cash, receivables, inventories, derivatives, revenue recognition, leases, and income taxes - The Company consolidates wholly-owned and controlled subsidiaries, including Variable Interest Entities (VIEs) like The Andersons Marathon Holdings LLC (TAMH) and ELEMENT, where it is determined to be the primary beneficiary[221][224][225] - Readily Marketable Inventories (RMI) are stated at net realizable value, and all commodity derivative contracts are marked to market at fair value, with gains/losses included in cost of sales[231] - Revenue is recognized under ASC 815 for commodity contracts (derivatives), ASC 842 for lease revenues, and ASC 606 for sales of other products and services, with specific criteria for each[248][251][254] - The company adopted ASC 842 (Leases) in 2019 using the modified retrospective approach, recognizing right-of-use assets and corresponding lease liabilities[255] - In 2020, the company adopted ASU 2016-13 (Measurement of Credit Losses on Financial Instruments) and ASU 2018-15 (Cloud Computing Software), with immaterial impacts, and elected to immediately adopt ASU 2020-04 (Reference Rate Reform)[260][261][262] 2. Inventories The company's inventories include grain, frac sand, ethanol, plant nutrients, and railcar parts, with a significant charge in 2020 due to lower ethanol prices Inventories (in thousands) | Inventory Type | December 31, 2020 | December 31, 2019 | | :---------------------------------- | :---------------- | :---------------- | | Grain and other agricultural products (a) | $1,025,809 | $907,482 | | Frac sand and propane | $12,477 | $15,438 | | Ethanol and co-products (b) | $114,895 | $95,432 | | Plant nutrients and cob products | $139,885 | $146,164 | | Railcar repair parts | $7,627 | $6,020 | | Total | $1,300,693 | $1,170,536 | - For the year ended December 31, 2020, the Company recorded an $11.7 million lower of cost or net realizable value charge related to lower ethanol market prices due to the COVID-19 pandemic[266] 3. Property, Plant and Equipment The company's property, plant, and equipment, and rail assets leased to others are detailed, with depreciation increasing in 2020 due to the TAMH merger and ELEMENT Property, Plant and Equipment, Net (in thousands) | Category | December 31, 2020 | December 31, 2019 | | :------------------------------------- | :---------------- | :---------------- | | Land | $40,222 | $40,442 | | Land improvements and leasehold improvements | $96,700 | $103,148 | | Buildings and storage facilities | $387,992 | $373,961 | | Machinery and equipment | $925,074 | $835,156 | | Construction in progress | $19,725 | $59,993 | | Less: accumulated depreciation | $(590,534) | $(474,282) | | Property, plant and equipment, net | $879,179 | $938,418 | - Depreciation expense on property, plant and equipment increased significantly to $125.7 million in 2020 from $82.3 million in 2019, primarily due to the TAMH merger and ELEMENT starting operations[269] - In 2019, the company recorded $32.3 million in impairment charges for frac sand assets and $3.7 million for Tennessee grain assets within the Trade segment[269] Rail Assets Leased to Others, Net (in thousands) | Category | December 31, 2020 | December 31, 2019 | | :----------------------------- | :---------------- | :---------------- | | Rail assets leased to others | $750,473 | $723,004 | | Less: accumulated depreciation | $(158,527) | $(138,706) | | Rail assets, net | $591,946 | $584,298 | - Depreciation expense on Rail assets leased to others was $30.8 million in 2020, up from $28.5 million in 2019. No Rail asset impairment charges were taken in 2019 or 2020[271][272] 4. Debt The company's debt includes short-term and long-term recourse and non-recourse obligations, with a new $150 million term loan in 2020, decreased interest paid, and compliance with covenants Debt Summary (in thousands) | Debt Category | December 31, 2020 | December 31, 2019 | | :------------------------------------------ | :---------------- | :---------------- | | Short-term debt – non-recourse | $93,192 | $54,029 | | Short-term debt – recourse | $310,511 | $93,002 | | Total short-term debt | $403,703 | $147,031 | | Current maturities of long-term debt – non-recourse | $6,438 | $9,545 | | Current maturities of long-term debt – recourse | $69,037 | $53,354 | | Total current maturities of long-term debt | $75,475 | $62,899 | | Long-term debt, less: current maturities – non-recourse | $143,406 | $330,250 | | Long-term debt, less: current maturities – recourse | $773,134 | $685,998 | | Total long-term debt, less: current maturities | $916,540 | $1,016,248 | - On October 23, 2020, the Company entered into a new amendment to its credit agreement, providing an incremental $150.0 million term loan maturing in 2026, which replaced an existing credit facility and resulted in a $2.8 million loss on reclassified interest rate swaps[274] - Total interest paid decreased to $51.6 million in 2020 from $59.6 million in 2019. The weighted average interest rate on short-term borrowings decreased to 1.66% in 2020 from 3.24% in 2019[275][276] - The Company was in compliance with all financial covenants at and during the years ended December 31, 2020 and 2019[275] 5. Derivatives The company uses commodity derivatives for market price risk in Trade and Ethanol, and interest rate derivatives for borrowing risk, with fair values and financial impacts reported - The Company uses exchange-traded commodity futures and options contracts and over-the-counter (OTC) forward and option contracts to reduce exposure to market price risk on commodities, primarily in its Trade and Ethanol businesses[281] - While these commodity contracts are considered effective economic hedges, the Company does not designate or account for them as hedges under current accounting standards; realized and unrealized gains/losses are included in cost of sales[282][283] Net Pre-Tax Gains and Losses on Commodity Derivatives (in thousands) | Year Ended December 31, | Gains (losses) on commodity derivatives included in Cost of sales and merchandising revenues | | :---------------------- | :----------------------------------------------------------------------------------------- | | 2020 | $(36,563) | | 2019 | $1,939 | | 2018 | $4,236 | - The Company uses interest rate swaps to manage interest rate risk on borrowing activities, with some designated as cash flow hedges (gains/losses recorded in Other Comprehensive Income) and others not designated as hedges (changes in fair value recognized in interest expense)[294][295] Derivatives Designated as Hedging Instruments (in thousands) | Year Ended December 31, | Interest rate derivative gains (losses) included in Other comprehensive income | | :---------------------- | :----------------------------------------------------------------------------- | | 2020 | $(11,497) | | 2019 | $(12,398) | 6. Employee Benefit Plans The company offers frozen defined benefit pension plans and postretirement health care benefits, with details on plan obligations, funded status, net periodic benefit cost, and actuarial assumptions - The Company provides pension benefits under an unfunded noncontributory defined benefit plan (frozen July 1, 2010) and postretirement health care benefits to full-time employees hired before January 1, 2003[301] Underfunded Status of Plans (in thousands) | Plan Type | December 31, 2020 | December 31, 2019 | | :------------------ | :---------------- | :---------------- | | Pension Benefits | $(1,884) | $(3,088) | | Postretirement Benefits | $(25,324) | $(24,872) | Net Periodic Benefit Cost (in thousands) | Component | Pension Benefits 2020 | Pension Benefits 2019 | Postretirement Benefits 2020 | Postretirement Benefits 2019 | | :-------------------- | :-------------------- | :-------------------- | :--------------------------- | :--------------------------- | | Service cost | — | — | $221 | $365 | | Interest cost | $48 | $116 | $719 | $854 | | Expected return on plan assets | — | — | $(911) | $(911) | | Recognized net actuarial loss | $248 | $232 | $79 | — | | Net periodic benefit cost | $296 | $348 | $108 | $308 | 7. Revenue Total revenues are disaggregated by accounting standards (ASC 606, 815, 842) and by segment, with commodity contracts and rail leasing comprising the majority Total Revenues by Accounting Standard (in thousands) | Revenue Source | 2020 | 2019 | 2018 | | :------------------- | :---------- | :---------- | :---------- | | Revenues under ASC 606 | $1,527,141 | $1,391,848 | $898,885 | | Revenues under ASC 815 | $6,584,909 | $6,659,932 | $2,040,866 | | Revenues under ASC 842 | $96,386 | $118,411 | $105,631 | | Total revenues | $8,208,436 | $8,170,191 | $3,045,382 | Disaggregation of Revenue under ASC 606 by Segment and Product/Service Line (2020, in thousands) | Product/Service Line | Trade | Ethanol | Plant Nutrient | Rail | Total | | :------------------- | :-------- | :-------- | :------------- | :-------- | :---------- | | Specialty nutrients | — | — | $234,806 | — | $234,806 | | Primary nutrients | — | — | $396,515 | — | $396,515 | | Service | $9,030 | — | $5,108 | $36,852 | $50,990 | | Products and co-products | $234,219 | $408,677 | — | — | $642,896 | | Frac sand and propane | $148,175 | — | — | — | $148,175 | | Other | $14,569 | $2,057 | $26,530 | $10,603 | $53,759 | | Total | $405,993 | $410,734 | $662,959 | $47,455 | $1,527,141 | - Service revenues, primarily from the railcar repair business, are recognized over time using an input-based measure of progress[320] Revenues under ASC 842 (Leases) (in thousands) | Lease Revenue Type | 2020 | 2019 | | :----------------- | :-------- | :-------- | | Operating lease revenue | $90,672 | $105,124 | | Sales-type lease revenue | $538 | $8,014 | | Variable lease revenue | $5,176 | $5,273 | | Total revenues | $96,386 | $118,411 | 8. Income Taxes The company reported an income tax benefit in 2020 due to a pre-tax loss and the CARES Act, a shift from 2019 expense, with changes in effective tax rate and increased unrecognized tax benefits Income Tax Provision (Benefit) (in thousands) | Category | 2020 | 2019 | 2018 | | :---------------- | :---------- | :---------- | :---------- | | Current: | | | | | Federal | $(42,718) | $1,079 | $(549) | | State and local | $(748) | $1,215 | $323 | | Foreign | $7,133 | $4,361 | $1,138 | | Total Current | $(36,333) | $6,655 | $912 | | Deferred: | | | | | Federal | $29,158 | $4,409 | $10,073 | | State and local | $1,127 | $1,925 | $578 | | Foreign | $(4,211) | $62 | $367 | | Total Deferred | $26,074 | $6,396 | $11,018 | | Total | $(10,259) | $13,051 | $11,931 | Reconciliation of Statutory to Effective U.S. Federal Tax Rate | Factor | 2020 (%) | 2019 (%) | 2018 (%) | | :------------------------------------------ | :-------- | :-------- | :-------- | | Statutory U.S. federal tax rate | 21.0 | 21.0 | 21.0 | | State and local income taxes, net | 4.6 | 7.3 | 3.4 | | U.S. tax rate change and other tax law impacts (a) | 60.2 | 2.1 | (1.5) | | Effect of noncontrolling interest | (18.8) | 2.4 | 0.1 | | Derivative instruments and hedging activities | (13.0) | — | — | | Income taxes on foreign earnings | (6.8) | (0.6) | (1.5) | | Nondeductible compensation | (6.1) | 4.6 | 1.5 | | Release (accrual) of unrecognized tax benefits | 2.7 | 3.9 | (0.1) | | Research and development and other tax credits | 1.4 | (23.2) | (3.4) | | Acquisition related permanent item | — | 24.0 | — | | Other, net | (3.2) | (1.2) | 0.5 | | Effective tax rate | 41.9 | 46.4 | 22.5 | - The company had $74.8 million of U.S. Federal, $204.0 million of state, and $1.9 million of non-U.S. net operating loss carryforwards as of December 31, 2020[332] Unrecognized Tax Benefits (in thousands) | Year Ended December 31, | Balance at End of Period | | :---------------------- | :----------------------- | | 2020 | $44,401 | | 2019 | $22,415 | | 2018 | $618 | - The increase in unrecognized tax benefits in 2020 and 2019 was primarily associated with Federal Research and Development Credits[335] 9. Accumulated Other Comprehensive Income (Loss) This note details components of Accumulated Other Comprehensive Income (AOCI), including foreign currency translation, cash flow hedges, and pension plans, with the total AOCI balance shifting to a $12.1 million loss in 2020 Accumulated Other Comprehensive Income (Loss) Components (in thousands) | Component | December 31, 2020 | December 31, 2019 | | :-------------------------------------- | :---------------- | :---------------- | | Currency Translation Adjustment | $5,739 | $1,065 | | Cash Flow Hedges | $(18,106) | $(9,443) | | Pension and Other Postretirement Plans | $33 | $889 | | Investments in Convertible Preferred Securities | $258 | $258 | | Total AOCI Ending Balance | $(12,076) | $(7,231) | - Amounts reclassified from cash flow hedges to interest expense were $8.1 million in 2020[340] 10. Fair Value Measurements The company measures assets and liabilities at fair value using a three-tier hierarchy, with commodity derivatives primarily Level 1 and 2, convertible preferred securities as Level 3 - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[342] Fair Value Measurements by Level (in thousands, as of Dec 31, 2020) | Asset/Liability Category | Level 1 | Level 2 | Level 3 | Total | | :----------------------- | :--------- | :---------- | :-------- | :--------- | | Commodity derivatives, net | $51,369 | $126,098 | — | $177,467 | | Provisionally priced contracts | $19,793 | $(48,818) | — | $(29,025) | | Convertible preferred securities | — | — | $8,849 | $8,849 | | Other assets and liabilities | $7,972 | $(26,058) | — | $(18,086) | | Total | $79,134 | $51,222 | $8,849 | $139,205 | - Level 1 commodity derivatives reflect exchange-traded futures and options contracts, net of cash collateral. Level 2 inputs for commodity derivatives include observable quotes for local basis adjustments[345][347] - Convertible preferred securities are classified as Level 3 inputs, with a fair value of $8.8 million as of December 31, 2020[344][351] - There were no non-recurring fair value measurements as of December 31, 2020[356] 11. Related Party Transactions The company holds equity method investments with an increasing balance in 2020 and engages in various arms-length related party transactions Equity Method Investments Balance (in thousands) | Investee Entity | December 31, 2020 | December 31, 2019 | | :------------------------ | :---------------- | :---------------- | | Providence Grain Group Inc. | $12,467 | $12,424 | | Quadra Commodities S.A. | $7,013 | $5,574 | | Other | $6,981 | $5,859 | | Total | $26,461 | $23,857 | Income (Losses) from Equity Method Investments (in thousands) | Investee Entity | 2020 | 2019 | 2018 | | :------------------------ | :------ | :-------- | :-------- | | Providence Grain Group Inc. | $(233) | $(7,411) | — | | Quadra Commodities S.A. | $1,439 | $910 | — | | Other | $(568) | $(335) | $(49) | | Total | $638 | $(7,359) | $27,141 | Related Party Transactions (in thousands) | Transaction Type | 2020 | 2019 | 2018 | | :--------------------------- | :-------- | :-------- | :-------- | | Sales revenues | $176,768 | $246,540 | $358,856 | | Service fee revenues | — | $12,181 | $20,843 | | Purchases of product | $52,665 | $569,619 | $741,736 | | Lease income | $583 | $3,516 | $6,523 | | Labor and benefits reimbursement | — | $10,973 | $13,487 | 12. Segment Information The company operates four reportable segments: Trade, Ethanol, Plant Nutrient, and Rail, with detailed financial data provided for each, including revenues and income before taxes - The Company's four reportable business segments are Trade, Ethanol, Plant Nutrient, and Rail, with 'Other' covering unallocated corporate costs[366] - In January 2020, the Lansing Vermont DDG business was moved from the Trade group to the Ethanol group as part of internal restructuring[366] Revenues from External Customers by Segment (in thousands) | Segment | 2020 | 2019 | 2018 | | :------------- | :---------- | :---------- | :---------- | | Trade | $6,141,402 | $6,144,526 | $1,433,660 | | Ethanol | $1,260,259 | $1,211,997 | $747,009 | | Plant Nutrient | $662,959 | $646,730 | $690,536 | | Rail | $143,816 | $166,938 | $174,177 | | Total | $8,208,436 | $8,170,191 | $3,045,382 | Income (Loss) Before Income Taxes Attributable to the Company by Segment (in thousands) | Segment | 2020 | 2019 | 2018 | | :------------- | :---------- | :---------- | :---------- | | Trade | $24,687 | $(17,328) | $21,715 | | Ethanol | $(25,413) | $50,907 | $27,076 | | Plant Nutrient | $16,015 | $9,159 | $12,030 | | Rail | $2,607 | $15,090 | $17,379 | | Other | $(20,445) | $(26,470) | $(24,785) | | Total | $(2,549) | $31,358 | $53,415 | Capital Expenditures by Segment (in thousands) | Segment | 2020 | 2019 | 2018 | | :------------- | :-------- | :-------- | :-------- | | Trade | $14,911 | $31,173 | $17,203 | | Ethanol | $39,791 | $104,023 | $101,320 | | Plant Nutrient | $16,565 | $20,413 | $15,723 | | Rail | $4,422 | $1,827 | $5,295 | | Other | $1,458 | $3,548 | $3,038 | | Total | $77,147 | $160,984 | $142,579 | 13. Leases The company leases various operating assets, reporting lease assets and liabilities for operating and finance leases, with lease costs recognized in the Consolidated Statements of Operations Leased Assets and Liabilities (in thousands) | Category | December 31, 2020 | December 31, 2019 | | :------------------------------ | :---------------- | :---------------- | | Assets | | | | Operating lease assets | $56,031 | $76,401 | | Finance lease assets | $41,745 | $41,188 | | Total leased assets | $97,776 | $117,589 | | Liabilities | | | | Total operating lease liabilities | $56,752 | $76,791 | | Total finance lease liabilities | $39,308 | $39,137 | | Total lease liabilities | $96,060 | $115,928 | Total Lease Cost (in thousands) | Lease Cost Component | 2020 | 2019 | | :------------------- | :-------- | :-------- | | Operating lease cost | $32,117 | $39,941 | | Finance lease cost | $3,748 | $2,500 | | Other lease cost | $923 | $1,144 | | Total lease cost | $36,788 | $43,584 | Weighted Average Lease Terms and Discount Rates | Metric | December 31, 2020 | December 31, 2019 | | :-------------------------- | :---------------- | :---------------- | | Weighted Average Remaining Lease Term (Operating leases) | 4.6 years | 4.1 years | | Weighted Average Remaining Lease Term (Finance leases) | 7.4 years | 6.5 years | | Weighted Average Discount Rate (Operating leases) | 3.96 % | 3.42 % | | Weighted Average Discount Rate (Finance leases) | 3.42 % | 3.42 % | 14. Commitments and Contingencies The company is involved in litigation and has various commitments, accruing for probable losses, though the ultimate resolution of certain claims remains uncertain - The Company is party to a non-regulatory litigation claim related to penalties and fines paid by a previously unconsolidated subsidiary for trading activity, with the ultimate resolution and potential loss in excess of accruals currently undeterminable[388] - As of December 31, 2020, the Company had $1.0 million in industrial revenue bonds outstanding with the City of Colwich, Kansas, maturing in 2029, with the related lease obligation netted against the bond asset on the balance sheet[389] 15. Stock Compensation Plans The company offers various stock-based compensation plans, including stock options, restricted stock awards, and performance share units, with total stock compensation expense in 2020 at $10.2 million - The Company's 2019 Long-Term Incentive Compensation Plan authorizes the issuance of up to 2.3 million common shares for various awards, with approximately 1.0 million shares remaining available at December 31, 2020[390] - Total stock-based compensation expense recognized in 2020 was $10.2 million, with $4.3 million related to the Lansing Acquisition 2018 Inducement and Retention Award Plan[391] Non-Vested Restricted Stock Awards (RSAs) Activity (in thousands) | Metric | Shares (in thousands) | Weighted-Average Grant-Date Fair Value ($) | | :----------------------------------- | :-------------------- | :------------------------------------- | | Non-vested at January 1, 2020 | 707 | $34.99 | | Granted | 284 | $18.35 | | Vested | (413) | $32.68 | | Forfeited | (11) | $25.94 | | Non-vested at December 31, 2020 | 567 | $28.50 | - As of December 31, 2020, there was $3.5 million of unrecognized compensation cost related to non-vested RSAs, expected to be recognized over a weighted-average period of 1.3 years[394] - The company also grants Earnings Per Share-Based Performance Share Units (EPS PSUs) and Total Shareholder Return-Based Performance Share Units (TSR PSUs), with unrecognized compensation costs of $0.2 million and $1.8 million, respectively, as of December 31, 2020[395][397][401] 16. Business Acquisitions In October 2019, The Andersons merged several ethanol LLCs into TAMH, leading to its consolidation, with purchase price allocation finalized in Q2 2020, recognizing goodwill for expected synergies - On October 1, 2019, The Andersons merged TAAE, TACE, TAME, and TADE into The Andersons Marathon Holdings LLC (TAMH), resulting in the consolidation of TAMH's results[405] - Total consideration transferred for the TAMH acquisition was $182.9 million, including non-cash consideration and equity values of previously held LLCs[405][406] - Goodwill of $3.1 million was recognized, primarily attributable to expected synergies and the assembled workforce of TAMH, and is not deductible for income tax purposes[409] Pro Forma Financial Information (Unaudited) (in thousands) | Metric | Year ended 2020 | December 31, 2019 | | :---------- | :-------------- | :---------------- | | Net sales | $8,208,436 | $8,377,863 | | Net loss | $(14,215) | $(24,475) | 17. Goodwill and Other Intangible Assets The company's goodwill balance increased in 2020, allocated across reporting units, with annual impairment tests showing no charges in three years, though Ethanol, GSM, and FSI units face future impairment risk Changes in Carrying Amount of Goodwill by Segment (in thousands) | Segment | January 1, 2018 | December 31, 2018 | December 31, 2019 | December 31, 2020 | | :------------- | :-------------- | :---------------- | :---------------- | :---------------- | | Trade | $1,171 | $1,171 | $127,781 | $122,067 | | Ethanol | — | — | $2,726 | $8,789 | | Rail | $4,167 | $4,167 | $4,167 | $4,167 | | Plant Nutrient | $686 | $686 | $686 | $686 | | Total | $6,024 | $6,024 | $135,360 | $135,709 | - Goodwill for the Trade segment is $122.1 million (net of $46.4 million accumulated impairment losses), and for the Plant Nutrient segment is $0.7 million (net of $68.9 million accumulated impairment losses) as of December 31, 2020[415] - Goodwill is tested annually as of October 1st using a one-step quantitative approach comparing business enterprise value (BEV) to carrying value. The BEV is computed using income and market approaches, with WACC ranging from 8.75% to 10.75%[416] - No goodwill impairment charges were incurred in 2020, 2019, or 2018. However, the Ethanol, Grain Storage and Merchandising (GSM), and Food and Specialty Ingredients (FSI) reporting units are identified as having the greatest risk of future impairment[418][419] Other Intangible Assets, Net (in thousands, as of Dec 31, 2020) | Intangible Asset Class | Useful Life (in years) | Original Cost | Accumulated Amortization | Net Book Value | | :--------------------- | :--------------------- | :------------ | :----------------------- | :------------- | | Customer list | 3 to 10 | $131,432 | $45,946 | $85,486 | | Non-compete agreements | 1 to 7 | $21,346 | $15,711 | $5,635 | | Supply agreement | 10 to 10 | $9,060 | $6,988 | $2,072 | | Technology | 10 to 10 | $13,400 | $7,538 | $5,862 | | Trademarks and patents | 7 to 10 | $15,810 | $10,764 | $5,046 | | Lease intangible | 1 to 8 | $8,195 | $5,368 | $2,827 | | Software | 2 to 10 | $89,038 | $53,626 | $35,412 | | Other | 3 to 5 | $1,009 | $409 | $600 | | Total | | $289,290 | $146,350 | $142,940 | - Amortization expense for intangible assets was $32.2 million in 2020, with expected future annual amortization of $30.8 million in 2021[420] 18. Sale of Assets In 2020, the company sold grain assets for a pre-tax gain, following several asset sales in 2019 and 2018, including agronomy assets, farm centers, and grain elevators - During 2020, the Company sold part of its grain assets in Geneva, New York, for $11.6 million, resulting in a pre-tax gain of $1.4 million[423] - In 2019, significant asset sales included agronomy assets of ANDE Canada ($25.1 million, $5.7 million pre-tax gain) and farm center assets in Bay City, Michigan ($4.6 million, $2.9 million pre-tax gain)[423] - In 2018, the Company sold grain elevators in Tennessee for $19.5 million and $1.3 million, a convertible preferred security investment for $6.4 million ($3.9 million pre-tax gain), and fifty barge vessels for $26.9 million ($2.4 million pre-tax gain)[424] 19. Subsequent Events Subsequent to year-end, the company secured a new $250 million short-term term note in early 2021 for working capital needs - On January 21, 2021, and February 4, 2021, The Andersons, Inc. entered into a credit agreement for a $250 million short-term term note for working capital, due December 31, 2021, bearing variable interest rates based on LIBOR[425] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes or disagreements with accountants on accounting and financial disclosure matters - There are no changes in or disagreements with accountants on accounting and financial disclosure[427] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes during the quarter - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[428] - Management also concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on criteria established in the Internal Control—Integrated Framework (2013) issued by COSO[429] - There have been no changes in the company's internal controls over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[429] Item 9B. Other Information The company reported no other information required by this item - No other information is reported under this item[437] PART III. Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the Company's 2021 Proxy Statement[438] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the Proxy Statement - Information on Executive Compensation is incorporated by reference from the Proxy Statement[439] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners, management, and related stockholder matters is incorporated by reference from the Proxy Statement - Information on Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is incorporated by reference from the Proxy Statement[439] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement - Information on Certain Relationships and Related Transactions, and Director Independence is incorporated by reference from the Proxy Statement[439] Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the Proxy Statement - Information on Principal Accountant Fees and Services is incorporated by reference from the Proxy Statement[439] PART IV. Item 15. Exhibits and Financial Statement Schedules This section lists all documents filed as part of the 10-K report, including consolidated financial statements, schedules, and a comprehensive exhibit listing - The section includes the Consolidated Financial Statements (Item 8) and Financial Statement Schedule II - Valuation and Qualifying Accounts[442] - A comprehensive Exhibit Listing details various documents, including Articles of Incorporation, Code of Regulations, specimen share certificates, indentures, lease and marketing agreements, employee share purchase and long-term incentive plans, employment agreements, credit agreements, and certifications[443][445][447] Item 16. Form 10-K Summary The company states that a Form 10-K Summary is not applicable for this report - A Form 10-K Summary is not applicable[451] Signatures The report is duly signed by the Chief Executive Officer, Chief Financial Officer, Corporate Controller, and Board of Directors, certifying its submission - The report is signed by Patrick E. Bowe (Chief Executive Officer), Brian A. Valentine (Chief Financial Officer), Michael T. Hoelter (Corporate Controller), and several Directors, confirming its submission[455][457]