Andersons Inc

Previous wording

Our critical accounting policies and critical accounting estimates, as described in our 2023 Form 10-K, have not materially changed through the first quarter of 2024.

Current wording

Our critical accounting policies and critical accounting estimates, as described in our 2023 Form 10-K, have not materially changed through the second quarter of 2024.

Previous wording

With shifting fundamentals, our mix of assets and merchandising businesses provide a solid foundation for us to benefit from large crops and carry markets, with wheat income opportunities potentially returning to the market. Our assets are well-positioned for the grains to flow in due course. Domestic premium ingredient demand is also expected to stay solid and should continue to support recent capital growth investments.

Current wording

Trade's portfolio mix of assets, ingredients and merchandising businesses provide a solid foundation for us to benefit from large crops and carry markets as well as tight, demand-driven markets. Our assets are well-positioned for the grains to flow in due course. Domestic premium ingredient demand is also expected to stay solid and should continue to support recent capital growth investments.

Previous wording

Agricultural inventories on hand were 106.7 million and 99.6 million bushels at March 31, 2024 and March 31, 2023, 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 169 million bushels at March 31, 2024, which is slightly lower than the 180 million bushels of capacity in the prior year after the divestiture of certain grain assets.

Current wording

Agricultural inventories on hand were 78.1 million and 74.5 million bushels at June 30, 2024, and June 30, 2023, 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 168 million bushels at June 30, 2024, which is slightly lower than the 175 million bushels of capacity in the prior year after the divestiture of certain grain assets.

Previous wording

The Renewables segment's first quarter operating results were significantly higher than the prior year as the Company recorded an $87.2 million impairment charge related to the ELEMENT ethanol plant in 2023. After considering the impact of the impairment charge, the Renewables segment still outperformed the prior year as ethanol crush margins improved year-over-year, further supported by favorable hedging positions. The Company's production facilities continued to operate efficiently in the quarter with record production and lower natural gas costs. Renewables diesel feedstocks volumes continue to grow albeit with compressed margins on industry fundamentals. Feed ingredient demand was also improved, however, values declined on lower corn prices. All four plants have now completed their semi-annual maintenance shutdowns and are operating at full capacity. The ethanol margin environment should remain favorable, specifically at the eastern production facilities as corn basis in the east remains well below levels in the west, as well as an expected increase in ethanol export volumes.

Current wording

The Renewables segment's second quarter operating results were lower than the outsized performance in the prior year as plant co-product values, particularly feed ingredients, were lower with feed ingredients following the overall price reduction of corn. Despite the lower co-product values, margins on ethanol production improved year-over-year on lower corn basis in the east and our production facilities continued to operate efficiently in the quarter with increased production and ethanol yields. Renewable diesel feedstocks volumes continue to grow albeit with compressed margins on industry fundamentals. Feed ingredient demand was also improved; however, values declined on lower corn prices. With a continued strong export environment, the ethanol margin environment should remain favorable.

Previous wording

Storage capacity at our Ag Supply Chain and Specialty Liquids facilities, including leased storage, was approximately 458 thousand tons for dry nutrients and approximately 508 thousand tons for liquid nutrients at March 31, 2024, which is similar to the prior year.

Current wording

Storage capacity at our Ag Supply Chain and Specialty Liquids facilities, including leased storage, was approximately 458 thousand tons for dry nutrients and approximately 510 thousand tons for liquid nutrients at June 30, 2024, which is similar to the prior year.

Previous wording

Interest expense decreased by $6.2 million due to reduced short-term borrowings from lower commodity prices in addition to the business managing working capital usage in a higher interest rate environment.

Current wording

Interest expense decreased by $5.4 million due to reduced short-term borrowings from lower commodity prices.

Previous wording

Operating results for the Trade segment decreased by $33.4 million from the prior year. Sales and merchandising revenues decreased by $983.9 million, and cost of sales and merchandising revenues decreased by $945.0 million for a decreased gross profit impact of $38.9 million. The majority of the decrease in sales and merchandising revenues and cost of sales and merchandising revenues can be attributed to a decrease in volumes. Much of this decrease was intentional as management made a prudent decision to pull back on activity in certain regions due to the recent geopolitical unrest. A lesser impact in volumes was from delayed farmer engagement from lower commodity prices. Commodity prices have weakened due to the oversupply of commodities shifting the global supply and demand balance, as we have moved from an inverse to a carry market. Of the $38.9 million decrease in gross profit, $25.3 million was related to insurance recoveries recorded in the prior year within the asset-based business. This was followed by a $15.3 million decrease in the merchandising businesses as there were less trading opportunities in a less volatile commodity market.

Current wording

Operating results for the Trade segment decreased by $33.0 million from the prior year. Sales and merchandising revenues decreased by $1,923.0 million, and cost of sales and merchandising revenues decreased by $1,883.0 million for a decreased gross profit impact of $40.0 million. A vast majority of the decrease in sales and merchandising revenues and cost of sales and merchandising revenues can be attributed to our merchandising business as management made a prudent decision to intentionally pull back on volumes traded in certain regions due to the recent geopolitical unrest. Reduced commodity prices also contributed to this contraction in sales and merchandising revenues and cost of sales and merchandising revenues across all of our business lines as the oversupply of commodities has shifted to a carry market. Of the $40.0 million decrease in gross profit, $20.3 million was related to insurance recoveries recorded in the prior year within the asset-based business. This was followed by a $26.5 million decrease in the merchandising businesses as there were less trading opportunities in a less volatile commodity market, which was partially offset by $8.8 million of improved results in our premium ingredients business as recent acquisitions were accretive to results.

Previous wording

Operating results for Renewables increased by $53.9 million from the same period of prior year. Sales and merchandising revenues decreased by $182.5 million, and cost of sales and merchandising revenues decreased by $193.2 million compared to prior year. As a result, gross profit increased by $10.8 million. The decrease in both sales and merchandising revenues and cost of sales and merchandising revenues can be mainly attributed to lower ethanol and renewable diesel feedstocks values. The prior year results also include approximately $40 million of sales and merchandising revenues and cost of sales and merchandising revenues from the previously consolidated ELEMENT facility. There was a modest increase in volumes to the continued growth of our renewable diesel feedstock merchandising business, partially offset by the lack of ELEMENT activity in 2024. The gross profit associated with the ethanol plants was $15.3 million higher than the prior year from improved ethanol margins, favorable hedging positions, lower energy costs, and the removal of ELEMENT from consolidated results. This improvement at the plant level was partially offset by lower gross profit of $4.9 million from our third-party trading businesses as higher supply resulted in less volatility and fewer trading opportunities.

Current wording

Operating results for Renewables increased by $37.6 million from the same period of prior year. Sales and merchandising revenues decreased by $374.1 million, and cost of sales and merchandising revenues decreased by $363.3 million compared to prior year. As a result, gross profit decreased by $10.8 million. The decrease in both sales and merchandising revenues and cost of sales and merchandising revenues can be attributed to lower ethanol and renewable diesel feedstocks values. Sales volumes remained consistent for the base ethanol business and increased in our growing renewable diesel feedstocks business. Ethanol and ethanol co-products sales values have decreased by approximately 27% from the prior period along with substantial declines in values across the various renewable diesel feedstocks. The $10.8 million decrease in gross profit from the prior period can mainly be attributable to the ethanol plants which are $7.6 million behind the strong prior year results. The main contributor to the decline from the prior year was due to lower ethanol co-product values as the price of corn decreased.

Previous wording

Interest expense decreased by $2.6 million from the prior year due to the deconsolidation of ELEMENT non-recourse debt.

Current wording

Interest expense decreased by $3.2 million from the prior year due to the deconsolidation of ELEMENT non-recourse debt.

Previous wording

Interest expense decreased $1.3 million from prior year due to lower working capital usage.

Current wording

Interest expense decreased $2.5 million from prior year due to lower working capital usage.

Previous wording

For the three months ended March 31, 2024, the Company recorded income tax expense of $1.3 million. The Company's effective tax rate was 9.3% on income before taxes of $14.0 million. The difference between the 9.3% 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, stock-based compensation, and federal tax credits offset by state and local income taxes, nondeductible compensation, and other discrete tax items.

Current wording

For the six months ended June 30, 2024, the Company recorded income tax expense of $6.2 million. The Company's effective tax rate was 8.7% on income before taxes of $71.3 million. The difference between the 8.7% 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, federal tax credits, stock based compensation, and the reversal of certain unrecognized tax benefits offset by state and local income taxes and nondeductible compensation.

Previous wording

For the three months ended March 31, 2023, the Company recorded an income tax benefit of $5.9 million. The Company’s effective tax rate was 9.1% on a loss before income taxes of $65.0 million. The difference between the 9.1% effective tax rate and the U.S. federal statutory rate of 21.0% is primarily attributable to the tax impact of non-controlling interest, state and local taxes, and nondeductible compensation. During the three months ended March 31, 2023, a discrete income tax benefit of $12.0 million was recorded on a loss before income taxes of $94.7 million from ELEMENT operations, which included an $87.2 million impairment charge.

Current wording

For the six months ended June 30, 2023, the Company recorded an income tax expense of $15.8 million. The Company’s effective tax rate was 40.2% on income before income taxes of $39.4 million. The difference between the 40.2% effective tax rate and the U.S. federal statutory rate of 21.0% is primarily attributable to the tax impact of noncontrolling interest, state and local income taxes, and nondeductible compensation. During the six months ended June 30, 2023, a net discrete income tax benefit of $10.6 million was recorded on a net loss before income taxes of $88.8 million related to the operations, impairment charge, and gain on the deconsolidation of a joint venture.

Previous wording

The Company’s subsidiary partnership returns are under federal tax examination by the Internal Revenue Service (“IRS”) for the tax years 2015 through 2021. The Company’s subsidiary is under federal tax examination by the Mexican tax authorities for tax year 2015. The IRS and Mexican tax authorities’ examinations could potentially be resolved within the next 12 months. The resolution of these examinations could change our unrecognized tax benefits and favorably impact income tax expense by a range of $2.9 million to $13.1 million.

Current wording

The Company’s subsidiary partnership returns are under U.S. federal and certain state tax examinations for tax years 2015 through 2021. The Company’s subsidiary is under federal tax examination by the Mexican tax authorities for tax year 2015. The U.S. federal, state, and Mexican tax authorities’ examinations could potentially be resolved within the next 12 months. The resolution of these examinations could change our unrecognized tax benefits and favorably impact income tax expense by a range of $5.6 million to $10.7 million.

Previous wording

At March 31, 2024, the Company had working capital of $1,130.6 million, an increase of $192.5 million from the prior year. This increase was attributable to changes in the following components of current assets and current liabilities:

Current wording

At June 30, 2024, the Company had working capital of $1,164.6 million, an increase of $20.5 million from the prior year. This increase was attributable to changes in the following components of current assets and current liabilities:

Previous wording

Current assets as of March 31, 2024, decreased $836.6 million in comparison to those as of March 31, 2023. This decrease was primarily related to the reduction of inventories and receivables which was partially offset by an increase in cash. The decreases in inventories and receivables can largely be attributed to the stabilization of agricultural commodity prices over the last year in comparison to historically high price levels of agricultural commodities, including fertilizer, in the same period of the prior year. The decreases in inventory and receivables also had a direct impact on cash as the Company was not deploying the cash to hold working capital as it had done in the previous year.

Current wording

Current assets as of June 30, 2024, decreased $288.0 million in comparison to those as of June 30, 2023. This decrease related to the reduction of all current asset accounts with the exception of the increase in cash and other current assets. The decreases in these current asset accounts can largely be attributed to the reduction and stabilization of agricultural commodity prices over the last year in comparison to historically high price levels of agricultural commodities, including fertilizer, in the same period of the prior year. The decreases in the working capital asset accounts also had a direct impact on cash as the Company was not deploying cash to hold working capital as it had done in the previous year.

Previous wording

Financing activities used cash of $98.3 million and provided cash of $308.8 million for the three months ended March 31, 2024 and 2023, respectively. This increase in cash used from the prior year is solely due to the change in the Company's borrowings on its short-term credit facility. The Company had sufficient cash on hand in the first quarter of 2024 to cover the large amount of settled payables and other changes in working capital.

Current wording

Financing activities used cash of $119.9 million and $155.0 million for the six months ended June 30, 2024, and 2023, respectively. This decrease in cash used from the prior year is mainly due to the change in the Company's borrowings on its short-term credit facility as the Company had sufficient cash on hand in 2024 to cover a large amount of settled payables and other changes in working capital.

Previous wording

The Company paid $6.5 million in dividends in the first three months of 2024 compared to $6.3 million paid in the prior period. The Company paid dividends of $0.190 and $0.185 per common share in January of 2024 and 2023, respectively. On February 15, 2024, the Company declared a cash dividend of $0.190 per common share payable on April 22, 2024, to shareholders of record on April 1, 2024.

Current wording

The Company paid $13.0 million in dividends in the first six months of 2024 compared to $12.5 million paid in the prior period. The Company paid dividends of $0.19 and $0.185 per common share in January and April of 2024, and 2023, respectively. On June 20, 2024, the Company declared a cash dividend of $0.19 per common share payable on July 22, 2024, to shareholders of record on July 1, 2024.

Previous wording

The Company is party to borrowing arrangements with a syndicate of banks that provide a total of $1,859.1 million in borrowing capacity. As of March 31, 2024, the Company had $1,845.6 million available for borrowing.

Current wording

The Company is party to borrowing arrangements with a syndicate of banks that provide a total of $1,857.0 million in borrowing capacity. As of June 30, 2024, the Company had $1,849.6 million available for borrowing.

Previous wording

The Company is typically in a significant net short-term borrowing position in the first two quarters of the year. The majority of these short-term borrowings bear interest at variable rates, an increase 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.

Current wording

The Company is typically in a net short-term borrowing position in the first two quarters of the year. The majority of these short-term borrowings bear interest at variable rates, an increase in interest rates could have a significant impact on our profitability. In addition, periods of high grain prices 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.