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EX-32.1 - EXHIBIT 32.1 - Andersons, Inc.ande2016093010-q_exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - Andersons, Inc.ande2016093010-q_exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Andersons, Inc.ande2016093010-q_exhibit311.htm
EX-12 - EXHIBIT 12 - Andersons, Inc.ex-12q32016.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 000-20557
 
 
THE ANDERSONS, INC.
(Exact name of the registrant as specified in its charter)
 
 
OHIO
 
34-1562374
(State of incorporation
or organization)
 
(I.R.S. Employer
Identification No.)
1947 Briarfield Boulevard, Maumee, Ohio
 
43537
(Address of principal executive offices)
 
(Zip Code)
(419) 893-5050
(Telephone Number)
 
(Former name, former address and former fiscal year, if changed since last report.)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
ý
Accelerated Filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The registrant had approximately 28.2 million common shares outstanding, no par value, at November 8, 2016.



THE ANDERSONS, INC.
INDEX
 
 
Page No.
PART I. FINANCIAL INFORMATION
 
 
PART II. OTHER INFORMATION
 


2



Part I. Financial Information


Item 1. Financial Statements

The Andersons, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)(In thousands)
 
September 30,
2016
 
December 31,
2015
 
September 30,
2015
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
78,158

 
$
63,750

 
$
40,658

Restricted cash
190

 
451

 
181

Accounts receivable, net
173,593

 
170,912

 
201,664

Inventories (Note 2)
427,754

 
747,399

 
527,789

Commodity derivative assets – current (Note 5)
59,837

 
49,826

 
60,965

Deferred income taxes

 
6,772

 
6,735

Other current assets
43,761

 
90,412

 
66,411

Total current assets
783,293

 
1,129,522

 
904,403

Other assets:
 
 
 
 
 
Commodity derivative assets – noncurrent (Note 5)
1,346

 
412

 
1,584

Goodwill
63,934

 
63,934

 
116,086

Other intangible assets, net
110,155

 
120,240

 
124,943

Other assets, net
5,921

 
9,515

 
32,049

Equity method investments
225,114

 
242,107

 
223,207

 
406,470

 
436,208

 
497,869

Rail Group assets leased to others, net (Note 3)
334,401

 
338,111

 
347,100

Property, plant and equipment, net (Note 3)
460,247

 
455,260

 
442,322

Total assets
$
1,984,411

 
$
2,359,101

 
$
2,191,694


3


The Andersons, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)(In thousands)
 
September 30,
2016
 
December 31,
2015
 
September 30,
2015
Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term debt (Note 4)
$

 
$
16,990

 
$
82,801

Trade and other payables
356,931

 
668,788

 
466,428

Customer prepayments and deferred revenue
15,725

 
66,762

 
23,581

Commodity derivative liabilities – current (Note 5)
59,770

 
37,387

 
49,911

Accrued expenses and other current liabilities
68,465

 
70,324

 
71,593

Current maturities of long-term debt (Note 4)
51,520

 
27,786

 
26,989

Total current liabilities
552,411

 
888,037

 
721,303

Other long-term liabilities
30,525

 
18,176

 
16,510

Commodity derivative liabilities – noncurrent (Note 5)
1,954

 
1,063

 
2,912

Employee benefit plan obligations
45,260

 
45,805

 
58,123

Long-term debt, less current maturities (Note 4)
395,559

 
436,208

 
413,561

Deferred income taxes
178,535

 
186,073

 
179,591

Total liabilities
1,204,244

 
1,575,362

 
1,392,000

Commitments and contingencies (Note 13)

 

 

Shareholders’ equity:
 
 
 
 
 
Common shares, without par value (63,000 shares authorized; 29,430, 29,353 and 29,430 shares issued at 9/30/16, 12/31/15 and 9/30/15, respectively)
96

 
96

 
96

Preferred shares, without par value (1,000 shares authorized; none issued)

 

 

Additional paid-in-capital
221,326

 
222,848

 
224,595

Treasury shares, at cost (1,195, 1,397 and 1,425 shares at 9/30/16, 12/31/15 and 9/30/15, respectively)
(45,130
)
 
(52,902
)
 
(53,971
)
Accumulated other comprehensive loss
(17,305
)
 
(20,939
)
 
(57,459
)
Retained earnings
603,556

 
615,151

 
666,507

Total shareholders’ equity of The Andersons, Inc.
762,543

 
764,254

 
779,768

Noncontrolling interests
17,624

 
19,485

 
19,926

Total equity
780,167

 
783,739

 
799,694

Total liabilities and equity
$
1,984,411

 
$
2,359,101

 
$
2,191,694

See Notes to Condensed Consolidated Financial Statements


4


The Andersons, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)(In thousands, except per share data)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Sales and merchandising revenues
$
859,612

 
$
909,093

 
$
2,811,735

 
$
3,015,022

Cost of sales and merchandising revenues
782,597

 
823,903

 
2,569,923

 
2,738,348

Gross profit
77,015

 
85,190

 
241,812

 
276,674

Operating, administrative and general expenses
78,767

 
88,698

 
234,053

 
251,044

Interest expense
4,441

 
6,147

 
18,046

 
16,210

Other income (loss):
 
 
 
 
 
 
 
Equity in earnings (loss) of affiliates, net
8,422

 
3,845

 
3,789

 
23,295

Other income (loss), net
2,216

 
3,355

 
11,144

 
20,235

Income (loss) before income taxes
4,445

 
(2,455
)
 
4,646

 
52,950

Income tax provision (benefit)
1,104

 
(1,505
)
 
1,486

 
17,556

Net income (loss)
3,341

 
(950
)
 
3,160

 
35,394

Net income (loss) attributable to the noncontrolling interests
1,619

 
277

 
1,711

 
1,433

Net income (loss) attributable to The Andersons, Inc.
$
1,722

 
$
(1,227
)
 
$
1,449

 
$
33,961

Per common share:
 
 
 
 
 
 
 
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders
$
0.06

 
$
(0.04
)
 
$
0.05

 
$
1.19

Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders
$
0.06

 
$
(0.04
)
 
$
0.05

 
$
1.19

Dividends declared
$
0.155

 
$
0.14

 
$
0.465

 
$
0.42

See Notes to Condensed Consolidated Financial Statements


5


The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)(In thousands)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
3,341

 
$
(950
)
 
$
3,160

 
$
35,394

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Recognition of gain on sale of debt securities (net of income tax of $0, $0, $74 and $0)

 

 
(126
)
 

Change in unrecognized actuarial loss and prior service cost (net of income tax of $53, $235, $716 and $1,760 - Note 8)
87

 
388

 
1,381

 
2,906

Foreign currency translation adjustments (net of income tax of $0, ($696), $0 and $(82))
(298
)
 
(2,750
)
 
2,259

 
(5,954
)
Cash flow hedge activity (net of income tax of $0, $38, $72 and $112)

 
62

 
120

 
184

Other comprehensive income (loss)
(211
)
 
(2,300
)
 
3,634

 
(2,864
)
Comprehensive income (loss)
3,130

 
(3,250
)
 
6,794

 
32,530

Comprehensive income (loss) attributable to the noncontrolling interests
1,619

 
277

 
1,711

 
1,433

Comprehensive income (loss) attributable to The Andersons, Inc.
$
1,511

 
$
(3,527
)
 
$
5,083

 
$
31,097

See Notes to Condensed Consolidated Financial Statements


6


The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)
 
Nine months ended September 30,
 
2016
 
2015
Operating Activities
 
 
 
Net income (loss)
$
3,160

 
$
35,394

Adjustments to reconcile net income (loss) to cash used in operating activities:
 
 
 
Depreciation and amortization
62,244

 
57,365

Bad debt expense
789

 
802

Equity in losses (earnings) of affiliates, net of dividends
12,804

 
(3,868
)
Gain on sale of investments
(685
)
 

Gains on sales of Rail Group assets and related leases
(6,366
)
 
(12,438
)
Excess tax benefit from share-based payment arrangement

 
(1,299
)
Deferred income taxes
(46
)
 
18,921

Stock-based compensation expense
5,542

 
2,598

Goodwill impairment expense

 
1,985

Other
(102
)
 
1,061

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(5,425
)
 
(6,003
)
Inventories
283,158

 
292,960

Commodity derivatives
12,592

 
16,160

Other assets
36,536

 
(1,465
)
Payables and other accrued expenses
(362,855
)
 
(344,400
)
Net cash provided by (used in) operating activities
41,346

 
57,773

Investing Activities
 
 
 
Acquisition of business, net of cash acquired

 
(124,592
)
Purchases of Rail Group assets
(57,979
)
 
(112,346
)
Proceeds from sale of Rail Group assets
44,061

 
64,978

Purchases of property, plant and equipment
(56,138
)
 
(42,387
)
Proceeds from sale of property, plant and equipment
330

 
184

Proceeds from returns of investments in affiliates
7,443

 
1,480

Proceeds from sale of investments
15,013

 

Proceeds from sale of facilities
54,330

 

Purchase of Investments
(2,523
)
 

Change in restricted cash
260

 
248

Net cash provided by (used in) investing activities
4,797

 
(212,435
)
Financing Activities
 
 
 
Net change in short-term borrowings
(15,000
)
 
79,700

Proceeds from issuance of long-term debt
78,199

 
152,796

Proceeds from long-term financing arrangement
14,027

 

Payments of long-term debt
(91,393
)
 
(87,032
)
Purchase of treasury stock

 
(49,089
)
Distributions to noncontrolling interest owner
(3,400
)
 
(2,453
)
Proceeds from sale of treasury shares to employees and directors
1,159

 
447

Payments of debt issuance costs
(309
)
 
(271
)
Dividends paid
(13,020
)
 
(12,011
)
Excess tax benefit from share-based payment arrangement

 
1,299

Other
(1,998
)
 
(2,770
)
Net cash provided by (used in) financing activities
(31,735
)
 
80,616

Increase (decrease) in cash and cash equivalents
14,408

 
(74,046
)
Cash and cash equivalents at beginning of period
63,750

 
114,704

Cash and cash equivalents at end of period
$
78,158

 
$
40,658


See Notes to Condensed Consolidated Financial Statements

7


The Andersons, Inc.
Condensed Consolidated Statements of Equity
(Unaudited)(In thousands, except per share data)
 
Common
Shares
 
Additional
Paid-in
Capital
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Noncontrolling
Interests
 
Total
Balance at December 31, 2014
$
96

 
$
222,789

 
$
(9,743
)
 
$
(54,595
)
 
$
644,556

 
$
20,946

 
$
824,049

Net income
 
 
 
 
 
 
 
 
33,961

 
1,433

 
35,394

Other comprehensive loss
 
 
 
 
 
 
(2,864
)
 
 
 
 
 
(2,864
)
Cash distributions to noncontrolling interest
 
 
 
 
 
 
 
 
 
 
(2,453
)
 
(2,453
)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $819 (163 shares)
 
 
(2,635
)
 
4,861

 
 
 
 
 
 
 
2,226

Purchase of Treasury Shares (1,193 shares)
 
 


 
(49,089
)
 
 
 
 
 
 
 
(49,089
)
Dividends declared ($0.42 per common share)
 
 
 
 
 
 
 
 
(11,872
)
 
 
 
(11,872
)
Shares Issued for acquisitions (77 shares)
 
 
4,303

 
 
 
 
 
 
 
 
 
4,303

Performance share unit dividend equivalents
 
 
138

 
 
 
 
 
(138
)
 
 
 

Balance at September 30, 2015
$
96

 
$
224,595

 
$
(53,971
)
 
$
(57,459
)
 
$
666,507

 
$
19,926

 
$
799,694

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
96

 
$
222,848

 
$
(52,902
)
 
$
(20,939
)
 
$
615,151

 
$
19,485

 
$
783,739

Net income
 
 
 
 
 
 
 
 
1,449

 
1,711

 
3,160

Other comprehensive income
 
 
 
 
 
 
3,634

 
 
 
 
 
3,634

Cash distributions to noncontrolling interest
 
 
 
 
 
 
 
 
 
 
(3,400
)
 
(3,400
)
Other change in noncontrolling interest
 
 
 
 
 
 
 
 
 
 
(172
)
 
(172
)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $471 (202 shares)
 
 
(1,542
)
 
7,772

 
 
 
 
 
 
 
6,230

Dividends declared ($0.465 per common share)
 
 
 
 
 
 
 
 
(13,024
)
 
 
 
(13,024
)
Restricted share award dividend equivalents
 
 
$
20

 
 
 
 
 
$
(20
)
 
 
 

Balance at September 30, 2016
$
96

 
$
221,326

 
$
(45,130
)
 
$
(17,305
)
 
$
603,556

 
$
17,624

 
$
780,167

See Notes to Condensed Consolidated Financial Statements


8


The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)


1. Basis of Presentation and Consolidation
These Condensed Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All intercompany accounts and transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
In the opinion of management, all adjustments consisting of normal and recurring items, considered necessary for the fair presentation of the results of operations, financial position, and cash flows for the periods indicated, have been made. The results in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. An unaudited Condensed Consolidated Balance Sheet as of September 30, 2015 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 2015 was derived from the audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”).
New Accounting Standards
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue From Contracts With Customers. They issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, and May 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, and ASU 2016-12, respectively. The core principle of the new revenue model is that an entity recognizes revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These standards are effective for annual and interim periods beginning after December 15, 2017. The Company is currently assessing the method of adoption and the impact this standard will have on its Consolidated Financial Statements and disclosures.
Leasing
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. This standard is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet with expanded disclosures around those items. This guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact of this standard.
Other applicable standards
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard clarifies how companies present and classify certain cash receipts and payments in the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2017. The Company is currently evaluating when to adopt this standard but has not done so in the current period. At the time of future adoption, the Company will make the election to continue classifying distributions from equity method investments using the cumulative earnings approach which is consistent with current practice.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting. This standard simplifies the accounting treatment for excess tax benefits and deficiencies, forfeitures, and cash flow considerations related to share-based compensation. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company is currently assessing the method of adoption and the impact this standard will have on its Consolidated Financial Statements and disclosures.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. This standard provides guidance for the recognition, measurement, presentation, and disclosure

9


of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted. The Company is currently evaluating the impact of this standard.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory. This standard requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of this standard.



2. Inventories
Major classes of inventories are as follows:
(in thousands)
September 30,
2016
 
December 31,
2015
 
September 30,
2015
Grain
$
262,165

 
$
534,548

 
$
325,536

Ethanol and by-products
7,734

 
8,576

 
8,365

Plant nutrients and cob products
126,922

 
172,815

 
161,562

Retail merchandise
24,985

 
24,510

 
26,079

Railcar repair parts
5,948

 
6,894

 
6,057

Other

 
56

 
190

 
$
427,754

 
$
747,399

 
$
527,789


Inventories on the Condensed Consolidated Balance Sheets at September 30, 2016, December 31, 2015 and September 30, 2015 do not include 1.0 million, 3.4 million and 3.2 million bushels of grain, respectively, held in storage for others. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.

3. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
(in thousands)
September 30,
2016
 
December 31,
2015
 
September 30,
2015
Land
$
28,473

 
$
29,928

 
$
30,285

Land improvements and leasehold improvements
82,908

 
77,191

 
76,414

Buildings and storage facilities
319,950

 
303,482

 
301,125

Machinery and equipment
393,178

 
375,028

 
368,338

Construction in progress
21,284

 
32,871

 
21,044

 
845,793

 
818,500

 
797,206

Less: accumulated depreciation
385,546

 
363,240

 
354,884

 
$
460,247

 
$
455,260

 
$
442,322

Depreciation expense on property, plant and equipment was $35.7 million and $34.1 million for the nine months ended September 30, 2016 and 2015, respectively. Additionally, Depreciation expense on property, plant and equipment was $12.0 million and $11.9 million for the three months ended September 30, 2016 and 2015, respectively. Capitalized software has been reclassified from property, plant, and equipment, and is now presented as a component of other intangible assets. Prior year balance sheets have been recast to conform with the current period presentation.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:

10


(in thousands)
September 30,
2016
 
December 31,
2015
 
September 30,
2015
Rail Group assets leased to others
$
438,211

 
$
434,051

 
$
441,267

Less: accumulated depreciation
103,810

 
95,940

 
94,167

 
$
334,401

 
$
338,111

 
$
347,100

Depreciation expense on Rail Group assets leased to others amounted to $14.0 million and $12.9 million for the nine months ended September 30, 2016 and 2015, respectively. Additionally, depreciation expense on Rail Group assets leased to others amounted to $4.7 million and $4.6 million for the three months ended September 30, 2016 and 2015, respectively.

4. Debt
The Company is party to borrowing arrangements with a syndicate of banks. See Note 5 in the Company’s 2015 Form 10-K for a description of these arrangements. Total borrowing capacity for the Company under all lines of credit is currently at $872.5 million, including $22.5 million of debt of The Andersons Denison Ethanol LLC ("TADE"), which is non-recourse to the Company. At September 30, 2016, the Company had a total of $809.9 million available for borrowing under its lines of credit. Our borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company was in compliance with all financial covenants as of September 30, 2016.
The Company’s short-term and long-term debt at September 30, 2016December 31, 2015 and September 30, 2015 consisted of the following:
(in thousands)
September 30,
2016
 
December 31,
2015
 
September 30,
2015
Short-term Debt - Recourse
$

 
$
16,990

 
$
82,801

Total Short-term Debt

 
16,990

 
82,801

 
 
 
 
 
 
Current Maturities of Long-term Debt – Recourse
51,520

 
27,786

 
26,989

Total Current Maturities of Long-term Debt
51,520

 
27,786

 
26,989

 
 
 
 
 
 
Long-term Debt, Less: Current Maturities – Recourse
395,559

 
436,208

 
413,561

Total Long-term Debt, Less: Current Maturities
$
395,559

 
$
436,208

 
$
413,561



5. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established “unhedged” position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward grain and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over the counter forward and option contracts with various counterparties. These contracts are primarily traded via the regulated Chicago Mercantile Exchange ("CME"). The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.

All of these contracts meet the definition of derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company accounts for its commodity derivatives at estimated fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.


11


Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in cost of sales and merchandising revenues. These amounts were previously classified in sales and merchandising revenues but were reclassified starting in the fourth quarter of 2015.

Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Condensed Consolidated Balance Sheets.
The following table presents at September 30, 2016December 31, 2015 and September 30, 2015, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or noncurrent commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
 
September 30, 2016
 
December 31, 2015
 
September 30, 2015
(in thousands)
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
Collateral paid (received)
$
13,358

 
$

 
$
3,008

 
$

 
$
28,585

 
$

Fair value of derivatives
16,258

 

 
25,356

 

 
5,733

 

Balance at end of period
$
29,616

 
$

 
$
28,364

 
$

 
$
34,318

 
$


The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
 
September 30, 2016
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
60,372

 
$
1,356

 
$
3,318

 
$
58

 
$
65,104

Commodity derivative liabilities
(13,893
)
 
(10
)
 
(63,088
)
 
(2,012
)
 
(79,003
)
Cash collateral
13,358

 

 

 

 
13,358

Balance sheet line item totals
$
59,837

 
$
1,346

 
$
(59,770
)
 
$
(1,954
)
 
$
(541
)
 
December 31, 2015
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
51,647

 
$
412

 
$
371

 
$
2

 
$
52,432

Commodity derivative liabilities
(4,829
)
 

 
(37,758
)
 
(1,065
)
 
(43,652
)
Cash collateral
3,008

 

 

 

 
3,008

Balance sheet line item totals
$
49,826

 
$
412

 
$
(37,387
)
 
$
(1,063
)
 
$
11,788


12


 
September 30, 2015
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
43,892

 
$
1,591

 
$
2,306

 
$
32

 
$
47,821

Commodity derivative liabilities
(11,512
)
 
(7
)
 
(52,217
)
 
(2,944
)
 
(66,680
)
Cash collateral
28,585

 

 

 

 
28,585

Balance sheet line item totals
$
60,965

 
$
1,584

 
$
(49,911
)
 
$
(2,912
)
 
$
9,726


The gains (losses) included in the Company’s Condensed Consolidated Statements of Operations and the line items in which they are located are as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues
$
(48,620
)
 
$
(16,910
)
 
$
(22,679
)
 
$
34,902

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at September 30, 2016, December 31, 2015 and September 30, 2015:
 
September 30, 2016
Commodity (in thousands)
Number of Bushels
 
Number of Gallons
 
Number of Pounds
 
Number of Tons
Non-exchange traded:
 
 
 
 
 
 
 
Corn
226,492

 

 

 

Soybeans
60,614

 

 

 

Wheat
7,933

 

 

 

Oats
28,939

 

 

 

Ethanol

 
191,906

 

 

Corn oil

 

 
7,153

 

Other
129

 

 

 
251

Subtotal
324,107

 
191,906

 
7,153

 
251

Exchange traded:
 
 
 
 
 
 
 
Corn
105,395

 

 

 

Soybeans
35,245

 

 

 

Wheat
39,715

 

 

 

Oats
2,800

 

 

 

Ethanol

 
74,046

 

 

Subtotal
183,155

 
74,046

 

 

Total
507,262

 
265,952

 
7,153

 
251


13


 
December 31, 2015
Commodity (in thousands)
Number of Bushels
 
Number of Gallons
 
Number of Pounds
 
Number of Tons
Non-exchange traded:
 
 
 
 
 
 
 
Corn
227,248

 

 

 

Soybeans
13,357

 

 

 

Wheat
13,710

 

 

 

Oats
15,019

 

 

 

Ethanol

 
138,660

 

 

Corn oil

 

 
11,532

 

Other
297

 

 

 
116

Subtotal
269,631

 
138,660

 
11,532

 
116

Exchange traded:
 
 
 
 
 
 
 
Corn
106,260

 

 

 

Soybeans
17,255

 

 

 

Wheat
28,135

 

 

 

Oats
3,480

 

 

 

Ethanol

 
840

 

 

Other

 
840

 

 

Subtotal
155,130

 
1,680

 

 

Total
424,761

 
140,340

 
11,532

 
116

 
September 30, 2015
Commodity (in thousands)
Number of Bushels
 
Number of Gallons
 
Number of Pounds
 
Number of Tons
Non-exchange traded:
 
 
 
 
 
 
 
Corn
331,740

 

 

 

Soybeans
47,208

 

 

 

Wheat
12,631

 

 

 

Oats
19,449

 

 

 

Ethanol

 
131,789

 

 

Corn oil

 

 
10,063

 

Other
572

 

 

 
123

Subtotal
411,600

 
131,789

 
10,063

 
123

Exchange traded:
 
 
 
 
 
 
 
Corn
129,810

 

 

 

Soybeans
24,860

 

 

 

Wheat
28,360

 

 

 

Oats
3,285

 

 

 

Ethanol

 
3,192

 

 

Subtotal
186,315

 
3,192

 

 

Total
597,915

 
134,981

 
10,063

 
123









14


At September 30, 2016, December 31, 2015 and September 30, 2015, the Company had recorded the following amounts for the fair value of the Company's interest rate derivatives:
 
September 30,
 
December 31,
 
September 30,
(in thousands)
2016
 
2015
 
2015
Derivatives not designated as hedging instruments
 
 
 
 
 
Interest rate contracts included in other long term liabilities
$
(4,774
)
 
$
(3,133
)
 
$

Total fair value of interest rate derivatives not designated as hedging instruments
$
(4,774
)
 
$
(3,133
)
 
$

Derivatives designated as hedging instruments
 
 
 
 
 
Interest rate contract included in other short term liabilities
$

 
$
(191
)
 
$

Total fair value of interest rate derivatives designated as hedging instruments
$

 
$
(191
)
 
$

The gains and losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for interest rate derivatives not designated as hedging instruments are as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Interest expense
$
652

 
$

 
$
(1,642
)
 
$

The Company also has foreign currency derivatives which are considered effective economic hedges of specified economic risks but which are not designated as accounting hedges. At September 30, 2016, December 31, 2015 and September 30, 2015, the Company had recorded the following amounts for the fair value of the Company's foreign currency derivatives:
 
September 30,
 
December 31,
 
September 30,
(in thousands)
2016
 
2015
 
2015
Derivatives not designated as hedging instruments
 
 
 
 
 
Foreign currency contracts included in short term assets
$
1,130

 
$

 
$

Total fair value of foreign currency contract derivatives not designated as hedging instruments
$
1,130

 
$

 
$

The gains and losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for foreign currency contract derivatives not designated as hedging instruments are as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Foreign currency derivative gains (losses) included in Other income, net
$
(261
)
 
$

 
$
1,130

 
$


















15


6. Employee Benefit Plans

The following are components of the net periodic benefit cost for the pension and post-retirement benefit plans maintained by the Company for the three and nine months ended September 30, 2016 and 2015:
 
Pension Benefits
(in thousands)
Three months ended September 30,
 
Nine months ended September 30,
2016
 
2015
 
2016
 
2015
Service cost
$

 
$
59

 
$

 
$
177

Interest cost
49

 
45

 
145

 
136

Recognized net actuarial loss
36

 
379

 
109

 
1,137

Benefit cost
$
85

 
$
483

 
$
254

 
$
1,450

 
Post-retirement Benefits
(in thousands)
Three months ended September 30,
 
Nine months ended September 30,
2016
 
2015
 
2016
 
2015
Service cost
$
190

 
$
225

 
$
570

 
$
675

Interest cost
387

 
396

 
1,162

 
1,188

Amortization of prior service cost
(88
)
 
(136
)
 
(266
)
 
(408
)
Recognized net actuarial loss
192

 
379

 
576

 
1,138

Benefit cost
$
681

 
$
864

 
$
2,042

 
$
2,593


7. Income Taxes

On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes if necessary based on new information or events. The estimated annual effective tax rate is forecast based on actual historical information and forward-looking estimates and is used to provide for income taxes in interim reporting periods. The Company also recognizes the tax impact of certain unusual or infrequently occurring items, such as the effects of changes in tax laws or rates and impacts from settlements with tax authorities, discretely in the quarter in which they occur. Additionally, the annual effective tax rate differs from the statutory U.S. Federal tax rate of 35% primarily due to the impact of state income taxes, the tax benefit related to railroad track maintenance credit transactions, and to benefits or costs related to various permanent book to tax differences and tax credits.

For the three months ended September 30, 2016, the Company recorded income tax expense of $1.1 million at an effective tax rate of 24.8%, which varied from the U.S. Federal tax rate of 35% primarily due to 5.8% in discrete tax benefits related to prior years and a 3.4% tax benefit related to railroad track maintenance credit transactions. For the three months ended September 30, 2015, the Company recorded an income tax benefit of $1.5 million at an effective tax rate of 61.3%. The higher effective tax rate in the prior year was primarily due to the cumulative impact of revised full year earnings expectations, driven by the inclusion of a one-time charge which occurred in the fourth quarter related to the termination of the Company’s pension plan, and relatively low third quarter earnings.

For the nine months ended September 30, 2016, the Company recorded income tax expense of $1.5 million at an effective tax rate of 32.0%, which varied from the U.S. Federal tax rate of 35% primarily due to a 3.3% tax benefit related to railroad track maintenance credit transactions. The discrete tax benefits related to prior years that impacted the third quarter tax rate did not have a significant impact on the nine month effective tax rate due to an offsetting discrete tax charge related to prior years that was recorded in the first quarter. For the nine months ended September 30, 2015, the Company recorded income tax expense of $17.6 million at an effective tax rate of 33.2%.

There have been no material changes to the balance of unrecognized tax benefits reported at December 31, 2015. During the quarter ended March 31, 2016, the IRS completed its audit of the Company’s 2011 and 2012 consolidated Federal income tax returns. The results of the examination will not have a material effect on the Company’s 2016 effective tax rate.





16


8. Accumulated Other Comprehensive Loss

The following tables summarize the after-tax components of accumulated other comprehensive income (loss) attributable to the Company for the three and nine months ended September 30, 2016 and 2015:

 
 
 
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
 
 
 
For the three months ended September 30, 2016
 
For the nine months ended September 30, 2016
(in thousands)
 
Losses on Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
 
Losses on Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
Beginning Balance
 
$
9

 
$
(9,484
)
 
$

 
$
(7,619
)
 
$
(17,094
)
 
$
(111
)
 
$
(12,041
)
 
$
126

 
$
(8,913
)
 
$
(20,939
)
 
Other comprehensive income (loss) before reclassifications
 

 
(298
)
 

 
143

 
(155
)
 
120

 
2,259

 

 
1,547

 
3,926

 
Amounts reclassified from accumulated other comprehensive loss
 

 

 

 
(56
)
 
(56
)
 

 

 
(126
)
 
(166
)
 
(292
)
Net current-period other comprehensive income (loss)
 

 
(298
)
 

 
87

 
(211
)
 
120

 
2,259

 
(126
)
 
1,381

 
3,634

Ending balance
 
$
9

 
$
(9,782
)
 
$

 
$
(7,532
)
 
$
(17,305
)
 
$
9

 
$
(9,782
)
 
$

 
$
(7,532
)
 
$
(17,305
)
 
 
 
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
 
 
 
                        For the three months ended September 30, 2015
 
For the nine months ended September 30, 2015
(in thousands)
 
Losses on Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
 
Losses on Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
Beginning Balance
 
$
(242
)
 
$
(7,913
)
 
$
126

 
$
(47,130
)
 
$
(55,159
)
 
$
(364
)
 
$
(4,709
)
 
$
126

 
$
(49,648
)
 
$
(54,595
)
 
Other comprehensive income (loss) before reclassifications
 
62

 
(2,750
)
 

 
473

 
(2,215
)
 
184

 
(5,954
)
 

 
3,161

 
(2,609
)
 
Amounts reclassified from accumulated other comprehensive loss
 

 

 

 
(85
)
 
(85
)
 

 

 

 
(255
)
 
(255
)
Net current-period other comprehensive income (loss)
 
62

 
(2,750
)
 

 
388

 
(2,300
)
 
184

 
(5,954
)
 

 
2,906

 
(2,864
)
Ending balance
 
$
(180
)
 
$
(10,663
)
 
$
126

 
$
(46,742
)
 
$
(57,459
)
 
$
(180
)
 
$
(10,663
)
 
$
126

 
$
(46,742
)
 
$
(57,459
)
(a) All amounts are net of tax. Amounts in parentheses indicate debits







17


The following tables show the reclassification adjustments from accumulated other comprehensive loss to net income (loss) for the three and nine months ended September 30, 2016 and 2015:
 
 
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
(in thousands)
For the three months ended September 30, 2016
 
For the nine months ended September 30, 2016
Details about Accumulated Other Comprehensive Income (Loss) Components
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in the Statement Where Net Income Is Presented
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in the Statement Where Net Income Is Presented
Defined Benefit Plan Items
 
 
 
 
 
 
 
 
     Amortization of prior-service cost
 
$
(89
)
 
(b)
 
$
(266
)
 
(b)
 
 
(89
)
 
Total before tax
 
(266
)
 
Total before tax
 
 
33

 
Income tax provision
 
100

 
Income tax provision
 
 
$
(56
)
 
Net of tax
 
$
(166
)
 
Net of tax
 
 
 
 
 
 
 
 
 
Other items
 
 
 
 
 
 
 
 
    Recognition of gain on sale of investment
 
$

 
 
 
(200
)
 
 
 
 

 
Total before tax
 
(200
)
 
Total before tax
 
 

 
Income tax provision
 
74

 
Income tax provision
 
 
$

 
Net of tax
 
$
(126
)
 
Net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
(56
)
 
Net of tax
 
(292
)
 
Net of tax
 
 
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
(in thousands)
For the three months ended September 30, 2015
 
For the nine months ended September 30, 2015
Details about Accumulated Other Comprehensive Income (Loss) Components
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in the Statement Where Net Income Is Presented
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in the Statement Where Net Income Is Presented
Defined Benefit Plan Items
 
 
 
 
 
 
 
 
     Amortization of prior-service cost
 
$
(136
)
 
(b)
 
$
(408
)
 
(b)
 
 
(136
)
 
Total before tax
 
(408
)
 
Total before tax
 
 
51

 
Income tax provision
 
153

 
Income tax provision
 
 
$
(85
)
 
Net of tax
 
$
(255
)
 
Net of tax
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(85
)
 
Net of tax
 
$
(255
)
 
Net of tax
(a) Amounts in parentheses indicate credits to profit/loss
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost (see Note 6).

18



9. Earnings Per Share
Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Company’s nonvested restricted stock that was granted prior to March 2015 is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest.
(in thousands, except per common share data)
Three months ended September 30,
 
Nine months ended September 30,
2016
 
2015
 
2016
 
2015
Net income (loss) attributable to The Andersons, Inc.
$
1,722

 
$
(1,227
)
 
$
1,449

 
$
33,961

Less: Distributed and undistributed earnings (loss) allocated to nonvested restricted stock
2

 
(2
)
 
7

 
61

Earnings (loss) available to common shareholders
$
1,720

 
$
(1,225
)
 
$
1,442

 
$
33,900

Earnings per share – basic:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
28,222

 
28,071

 
28,184

 
28,394

Earnings (loss) per common share – basic
$
0.06

 
$
(0.04
)
 
$
0.05

 
$
1.19

Earnings per share – diluted:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
28,222

 
28,071

 
28,184

 
28,394

Effect of dilutive awards
140

 

 
196

 
60

Weighted average shares outstanding – diluted
28,362

 
28,071

 
28,380

 
28,454

Earnings (loss) per common share – diluted
$
0.06

 
$
(0.04
)
 
$
0.05

 
$
1.19

There were no antidilutive stock-based awards outstanding at September 30, 2016 or September 30, 2015.

19



10. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2016, December 31, 2015 and September 30, 2015:
(in thousands)
September 30, 2016
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$

 
$

 
$

 
$

Restricted cash
190

 

 

 
190

Commodity derivatives, net (a)
34,620

 
(35,161
)
 

 
(541
)
Provisionally priced contracts (b)
(79,022
)
 
(20,500
)
 

 
(99,522
)
Convertible preferred securities (c)

 

 
3,294

 
3,294

Other assets and liabilities (d)
11,015

 
(4,774
)
 

 
6,241

Total
$
(33,197
)
 
$
(60,435
)
 
$
3,294

 
$
(90,338
)
(in thousands)
December 31, 2015
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
26,931

 
$

 
$

 
$
26,931

Restricted cash
450

 

 

 
450

Commodity derivatives, net (a)
26,890

 
(15,101
)
 

 
11,789

Provisionally priced contracts (b)
(133,842
)
 
(103,148
)
 

 
(236,990
)
Convertible preferred securities (c)

 

 
13,550

 
13,550

Other assets and liabilities (d)
8,635

 
(3,324
)
 
350

 
5,661

Total
$
(70,936
)
 
$
(121,573
)
 
$
13,900

 
$
(178,609
)
(in thousands)
September 30, 2015
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
16,121

 
$

 
$

 
$
16,121

Restricted cash
181

 

 

 
181

Commodity derivatives, net (a)
34,337

 
(24,611
)
 

 
9,726

Provisionally priced contracts (b)
(81,037
)
 
(54,612
)
 

 
(135,649
)
Convertible preferred securities (c)

 

 
12,800

 
12,800

Other assets and liabilities (d)
10,814

 
(4,010
)
 
350

 
7,154

Total
$
(19,584
)
 
$
(83,233
)
 
$
13,150

 
$
(89,667
)
 
(a)
Includes associated cash posted/received as collateral
(b)
Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2)
(c)
Recorded in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheets
(d)
Included in other assets and liabilities are deferred compensation assets, ethanol risk management contracts, and foreign exchange derivative contracts (Level 1), interest rate derivatives (Level 2), and contingent consideration to the former owners of Kay Flo Industries, Inc (Level 3).

Level 1 commodity derivatives reflect the fair value of the exchange-traded futures and options contracts that the Company holds, net of the cash collateral that the Company has in its margin account.

The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or

20


options prices on the CME or the New York Mercantile Exchange for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because basis for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the Agribusiness industry, we have concluded that basis is a Level 2 fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a material input to fair value for these commodity contracts.

These fair value disclosures exclude physical grain inventories measured at net realizable value. The net realizable value used to measure the Company’s agricultural commodity inventories is the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. This valuation would generally be considered Level 2. The amount is disclosed in Note 2 Inventories. Changes in the net realizable value of commodity inventories are recognized as a component of cost of sales and merchandising revenues.

Provisionally priced contract liabilities are those for which the Company has taken ownership and possession of grain but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or we have delivered provisionally priced grain and a subsequent payable or receivable is set up for any futures changes in the grain price, quoted CBOT prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. For all other unpriced contracts which include variable futures and basis components, the amounts recorded for delayed price contracts are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy.

The risk management contract liability allows related ethanol customers to effectively unprice the futures component of their inventory for a period of time, subjecting the bushels to market fluctuations. The Company records an asset or liability for the market value changes of the commodities over the life of the contracts based on quoted CBOT prices and as such, the balance is deemed to be Level 1 in the fair value hierarchy.

The Company’s stake in the Iowa Northern Railway Company ("IANR") was redeemed in the first quarter of 2016. The remaining convertible preferred securities are interests in two early-stage enterprises in the form of debt securities with the possibility of conversion to equity under certain circumstances.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
(in thousands)
2016
 
2015
 
2016
 
2015
 
Contingent Consideration
 
Contingent Consideration
 
Convertible Securities
 
Convertible Securities
Asset (liability) at January 1,
$
(350
)
 
$

 
$
13,550

 
$
13,300

Gains (losses) included in earnings
190

 

 
710

 

Sales proceeds

 

 
(13,485
)
 

Asset (liability) at March 31,
$
(160
)
 
$

 
$
775

 
$
13,300

Gains (losses) included in earnings
160

 

 
19

 

New agreements

 
350

 
2,500

 

Asset (liability) at June 30,


350


3,294


13,300

Sales proceeds

 

 

 
(992
)
Realized gains (losses) included in earnings

 

 

 
492

Asset at September 30,
$

 
$
350

 
$
3,294

 
$
12,800


The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of September 30, 2016, December 31, 2015 and September 30, 2015:

21


Quantitative Information about Level 3 Fair Value Measurements
(in thousands)
Fair Value as of September 30, 2016
 
Valuation Method
 
Unobservable Input
 
Weighted Average
Convertible Notes
$
3,294

 
Cost basis plus interest
 
N/A
 
N/A
 
 
 
 
 
 
 
 
(in thousands)
Fair Value as of December 31, 2015
 
Valuation Method
 
Unobservable Input
 
Weighted Average
Convertible Preferred Securities
$
12,800

 
Market Approach
 
EBITDA Multiples
 
5.6

 
 
 
Income Approach
 
Discount Rate
 
14.5
%
 
 
 
 
 
 
 
 
Convertible Notes
$
750

 
Cost basis plus interest
 
N/A
 
N/A

 
 
 
 
 
 
 
 
(in thousands)
Fair Value as of September 30, 2015
 
Valuation Method
 
Unobservable Input
 
Weighted Average
Convertible Preferred Securities
$
12,800

 
Market Approach
 
EBITDA Multiples
 
5.535

 
 
 
Income Approach
 
Discount Rate
 
14.5
%

Fair Value of Financial Instruments
The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered Level 2 in the fair value hierarchy.
(in thousands)
September 30,
2016

December 31,
2015
 
September 30,
2015
Fair value of long-term debt, including current maturities
$
458,268

 
$
467,703

 
$
448,298

Fair value in excess of carrying value
7,714

 
3,708

 
8,040

The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.

11. Related Party Transactions
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.
On December 4, 2015, Lansing Trade Group, LLC ("LTG") agreed to the sale of equity to New Hope Liuhe Investment (USA), Inc., a U.S. subsidiary of the Chinese company, New Hope Liuhe Co. Ltd. New Hope paid cash for a 20 percent equity interest in LTG. The impact of this transaction to the Company was a reduction in total ownership share of LTG from approximately 38.5 percent to 31.0 percent which includes dilution from newly issued shares as well as a redemption of shares that occurred on a pro rata basis between the Company and the other existing owners of LTG. The Company recognized a total gain of $23.1 million on these transactions. Cash of $8.2 million was received of which $1.3 million was a return of capital and $6.7 million was a return on capital. The remainder was a book gain on cash received in excess of basis in the shares redeemed.





22


The following table presents the Company’s investment balance in each of its equity method investees by entity:
(in thousands)
September 30, 2016
 
December 31, 2015
 
September 30, 2015
The Andersons Albion Ethanol LLC
$
36,661

 
$
32,871

 
$
31,409

The Andersons Clymers Ethanol LLC
21,340

 
29,278

 
31,151

The Andersons Marathon Ethanol LLC
23,812

 
31,255

 
30,066

Lansing Trade Group, LLC
91,573

 
101,531

 
84,081

Thompsons Limited (a)
47,494

 
43,964

 
43,803

Other
4,234

 
3,208

 
2,697

Total
$
225,114

 
$
242,107

 
$
223,207

 (a) Thompsons Limited and related U.S. operating company held by joint ventures
The Company holds a majority interest (66%) in The Andersons Ethanol Investment LLC (“TAEI”). This consolidated entity holds a 50% interest in The Andersons Marathon Ethanol LLC (“TAME”). The noncontrolling interest in TAEI is attributed 34% of the gains and losses of TAME recorded by the Company in its equity in earnings of affiliates.
The following table summarizes income (loss) earned from the Company’s equity method investments by entity:
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
% Ownership at
September 30, 2016
 
2016
 
2015
 
2016
 
2015
The Andersons Albion Ethanol LLC
55%
 
$
2,528

 
$
665

 
$
3,857

 
$
4,080

The Andersons Clymers Ethanol LLC
38%
 
2,706

 
1,454

 
3,516

 
4,922

The Andersons Marathon Ethanol LLC
50%
 
2,655

 
385

 
2,557

 
3,530

Lansing Trade Group, LLC
33% (a)
 
689

 
1,382

 
(7,412
)
 
9,290

Thompsons Limited (b)
50%
 
(156
)
 
17

 
1,271

 
1,385

Other
5% - 34%
 

 
(58
)
 

 
88

Total
 
 
$
8,422

 
$
3,845

 
$
3,789

 
$
23,295

 (a) This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 0.8%
 (b) Thompsons Limited and related U.S. operating company held by joint ventures

Total distributions received from unconsolidated affiliates were $24.1 million and $20.8 million for the nine months ended September 30, 2016 and September 30, 2015.

In the third quarter of 2016, The Andersons Albion Ethanol LLC, The Andersons Clymers Ethanol LLC, The Andersons Marathon LLC, Lansing Trade Group, and Thompsons Ltd. qualified as significant equity investees of the Company under the income test. The following table presents combined summarized unaudited financial information of these investments for the three and nine months ended September 30, 2016 and 2015:
(in thousands)
Three months ended September 30,
Nine months ended September 30,
2016
 
2015
2016
 
2015
Revenues
$
1,646,697

 
$
2,250,326

$
4,676,583

 
$
5,129,523

Gross profit
50,141

 
73,881

127,963

 
211,470

Income (loss) from continuing operations
18,965

 
18,008

1,428

 
65,645

Net income (loss)
17,217

 
17,310

(2,924
)
 
59,637

Net income (loss) attributable to companies
17,752

 
15,990

(1,347
)
 
57,787

Investment in Debt Securities
The Company previously owned 100% of the cumulative convertible preferred shares of Iowa Northern Railway Company (“IANR”), which operates a short-line railroad in Iowa. In the first quarter of 2016, these shares were redeemed and the

23


Company no longer has an ownership stake with this entity. See Footnote 10 for additional information on the effects of this transaction.
Related Party Transactions
In the ordinary course of business, the Company will enter into related party transactions with each of the investments described above, along with other related parties. The following table sets forth the related party transactions entered into for the time periods presented:
 
Three months ended September 30,
Nine months ended September 30,
(in thousands)
2016
 
2015
2016
 
2015
Sales revenues
$
177,724

 
$
230,409

$
549,426

 
$
577,133

Service fee revenues (a)
3,800

 
3,610

13,290

 
14,865

Purchases of product
128,081

 
123,051

346,590

 
339,159

Lease income (b)
1,300

 
1,542

4,662

 
4,787

Labor and benefits reimbursement (c)
2,862

 
2,950

9,702

 
8,761

Other expenses (d)

 
269

149

 
827

 
(a)
Service fee revenues include management fees, corn origination fees, ethanol and distillers dried grains (DDG) marketing fees, and other commissions.
(b)
Lease income includes the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the various ethanol LLCs and IANR.
(c)
The Company provides all operational labor to the unconsolidated ethanol LLCs and charges them an amount equal to the Company’s costs of the related services.
(d)
Other expenses include payments to IANR for repair facility rent and use of their railroad reporting mark, payment to LTG for the lease of railcars and other various expenses.
(in thousands)
September 30, 2016
 
December 31, 2015
 
September 30, 2015
Accounts receivable (e)
$
18,028

 
$
13,362

 
$
19,799

Accounts payable (f)
15,352

 
13,784

 
15,929

(e)
Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees.
(f)
Accounts payable represents amounts due to related parties for purchases of ethanol and other various items.

For the three months ended September 30, 2016 and 2015, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $109.3 million and $105.1 million, respectively. Additionally, for the nine months ended September 30, 2016 and 2015, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $220.6 million and $315.9 million, respectively.

For the three months ended September 30, 2016 and 2015, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $90.4 million and $119.4 million, respectively. Additionally, for the nine months ended September 30, 2016 and 2015, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $314.5 million and $323.7 million, respectively.

The Company enters into derivative contracts with certain of its related parties for the purchase and sale of corn and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale of derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties as of September 30, 2016December 31, 2015 and September 30, 2015 was $5.0 million, $2.3 million and $3.4 million, respectively. The fair value of derivative contract liabilities with related parties as of September 30, 2016, December 31, 2015 and September 30, 2015 was $0.2 million, $0.3 million and $0.3 million, respectively.

12. Segment Information
The Company’s operations include five reportable business segments that are distinguished primarily on the basis of products and services offered. The Grain business includes grain merchandising, the operation of terminal grain elevator facilities and the investments in LTG and Thompsons Limited. The Ethanol business purchases and sells ethanol and also manages the ethanol production facilities organized as limited liability companies, one is consolidated and three are investments accounted for under the equity method. There are various service contracts for these investments. Rail operations include the leasing, marketing and fleet management of railcars and other assets, railcar repair and metal fabrication. The Plant Nutrient business

24


manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers, along with turf care and corncob-based products. The Retail business operates large retail stores, a distribution center, and a lawn and garden equipment sales and service facility. Included in “Other” are the corporate level costs not attributed to an operating segment.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. Inter-segment sales are made at prices comparable to normal, unaffiliated customer sales. The Company does not have any customers who represent 10 percent or more of total revenues.
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Revenues from external customers
 
 
 
 
 
 
 
Grain
$
550,189

 
$
545,320

 
$
1,611,992

 
$
1,705,393

Ethanol
139,413

 
137,765

 
396,626

 
413,130

Plant Nutrient
101,770

 
149,303

 
588,797

 
660,440

Rail
38,201

 
44,758

 
118,152

 
134,497

Retail
30,039

 
31,947

 
96,168

 
101,562

Total
$
859,612

 
$
909,093

 
$
2,811,735

 
$
3,015,022

 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Inter-segment sales
 
 
 
 
 
 
 
Grain
$
7

 
$
404

 
$
1,632

 
$
2,534

Plant Nutrient
61

 
53

 
422

 
517

Rail
328

 
388

 
1,062

 
813

Total
$
396

 
$
845

 
$
3,116

 
$
3,864

 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Income (loss) before income taxes
 
 
 
 
 
 
 
Grain
$
1,879

 
$
131

 
$
(28,563
)
 
$
4,024

Ethanol
9,541

 
5,888

 
13,048

 
20,833

Plant Nutrient
(7,231
)
 
(11,114
)
 
18,008

 
8,183

Rail
6,754

 
11,913

 
22,698

 
43,915

Retail
(1,578
)
 
(769
)
 
(2,644
)
 
(1,483
)
Other
(6,539
)
 
(8,781
)
 
(19,612
)
 
(23,955
)
Noncontrolling interests
1,619

 
277

 
1,711

 
1,433

Total
$
4,445

 
$
(2,455
)
 
$
4,646

 
$
52,950

(in thousands)
September 30, 2016
 
December 31, 2015
 
September 30, 2015
Identifiable assets
 
 
 
 
 
Grain
$
721,412

 
$
1,010,810

 
$
852,388

Ethanol
174,822

 
183,080

 
186,250

Plant Nutrient
462,328

 
531,753

 
546,673

Rail
383,631

 
405,702

 
413,955

Retail
42,880

 
44,135

 
45,403

Other
199,338

 
183,621

 
147,025

Total
$
1,984,411

 
$
2,359,101

 
$
2,191,694




25


13. Commitments and Contingencies
The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, although individual cases that are material in size occur infrequently. As a defendant, the Company establishes reserves for claimed amounts that are considered probable, and capable of estimation. If those cases are resolved for lesser amounts, the excess reserves are taken into income and, conversely, if those cases are resolved for larger than the amount the Company has accrued, the Company records additional expense. The Company believes it is unlikely that the results of its current legal proceedings for which it is the defendant, even if unfavorable, will be material. As a plaintiff, amounts that are collected can also result in sudden, non-recurring income.
Litigation results depend upon a variety of factors, including the availability of evidence, the credibility of witnesses, the performance of counsel, the state of the law, and the impressions of judges and jurors, any of which can be critical in importance, yet difficult, if not impossible, to predict. Consequently, cases currently pending, or future matters, may result in unexpected, and non-recurring losses, or income, from time to time. Finally, litigation results are often subject to judicial reconsideration, appeal and further negotiation by the parties, and as a result, the final impact of a particular judicial decision may be unknown for some time, or may result in continued reserves to account for the potential of such post-verdict actions.
The estimated range of loss for all outstanding claims that are considered reasonably possible is not material.
Build-to-Suit Lease
In August, 2015, the Company entered into a lease agreement with an initial term of 15 years for a build-to-suit facility to be used as the new corporate headquarters which was completed in the third quarter of 2016. Since the Company is deemed to be the owner of this facility for accounting purposes during the construction period, we have recognized an asset and a corresponding financing obligation.
As of September 30, 2016, we have recorded a build-to-suit financing obligation of $13.7 million in other long-term liabilities and $1.3 million in other current liabilities.

14. Supplemental Cash Flow Information

Certain supplemental cash flow information, including noncash investing and financing activities for the nine months ended September 30, 2016 and 2015 are as follows:
 
Nine months ended September 30,
(in thousands)
2016
 
2015
Noncash investing and financing activity
 
 
 
Capital projects incurred but not yet paid
$
13,104

 
$
10,708

Purchase of a productive asset through seller-financing

 
1,010

Shares issued for acquisition of business

 
4,303

Dividends declared not yet paid
4,342

 
3,967


15. Business Acquisitions

There were no business acquisitions completed in the nine months ended September 30, 2016.

Prior Year Business Acquisitions

On May 18, 2015, the Company purchased Kay Flo Industries, Inc. and certain subsidiaries. The Company acquired 100% of the outstanding shares of Kay Flo Industries, Inc. In connection with the acquisition, the Company agreed to pay contingent consideration based on the achievement of specified objectives, including reaching targeted gross profit thresholds. The range of undiscounted amounts the Company could be required to pay under the contingent consideration arrangement is between $0 and $24 million.

The total fair value of consideration for the acquisitions was $129.4 million, including working capital and $0.4 million in estimated fair value of the contingent consideration arrangement. The Company has funded this transaction with long-term debt, short-term debt, and cash on hand. The debt has been drawn from the Company's existing line of credit. The purchase price allocation was finalized as of December 31, 2015.



26





16. Sale of Assets

On April 5, 2016 the Company's Board of Directors approved the sale of eight grain and agronomy locations in Iowa to MaxYield Cooperative of West Bend, Iowa. The Andersons acquired these locations as a part of its 2012 acquisition from Green Plains Grain Company. The Tennessee assets acquired during that same transaction will remain a part of the Company.


This transaction closed on May 2, 2016.

Total cash received was $54.3 million and a nominal gain was recognized on the sale.


27



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. You are urged to carefully consider these risks and others, including those risk factors listed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”). In some cases, you can identify forward-looking statements by terminology such as “may,” “anticipates,” “believes,” “estimates,” “predicts,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Critical Accounting Policies and Estimates
Our critical accounting policies and critical accounting estimates, as described in our 2015 Form 10-K, have not materially changed through the third quarter of 2016.
Executive Overview

Our operations are organized, managed and classified into five reportable business segments: Grain, Ethanol, Plant Nutrient, Rail, and Retail. Each of these segments is based on the nature of products and services offered.

The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit. As a result, changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to gross profit.
Grain Group
The Grain Group's performance in the third quarter reflects continued performance challenges in its core grain assets, as well as lower returns from affiliates. Overall results did improve, primarily due to the divestiture of underperforming assets in Iowa during the first half of 2016. The impact of the challenged harvest in the prior year continued to limit opportunities for space income and earnings from blending activities.
Grain inventories on hand at September 30, 2016 were 67.0 million bushels, of which 1.0 million bushels were stored for others. This compares to 67.3 million bushels on hand at September 30, 2015, of which 3.2 million bushels were stored for others. Total grain storage capacity was approximately 152 million bushels at September 30, 2016 compared to 163 million bushels at September 30, 2015 due to the sale of Iowa grain assets and the construction of a new elevator in Tennessee.
Based on preliminary indications, the Grain Group is expecting an increase in soybean and corn production in our core markets in the fourth quarter of 2016 compared to the prior year.
Ethanol Group
The Ethanol Group's third quarter results reflect improvements in overall margins as reductions in corn and natural gas input prices were only partially offset by modest decreases in the sales price of ethanol. Additionally, higher prices were realized on ethanol by-products in relation to the cost of the underlying corn inputs. Driving demand remains strong which supports high sales volumes.





28


Ethanol volumes shipped for the three and nine months ended September 30, 2016 and 2015 were as follows:
(in thousands)
Three months ended September 30,
Nine months ended September 30,
 
2016
 
2015
2016
 
2015
Ethanol (gallons shipped)
73,990

 
72,839

223,236

 
221,535

E-85 (gallons shipped)
11,309

 
10,294

26,722

 
25,433

Corn Oil (pounds shipped)
3,639

 
4,244

10,921

 
11,601

DDG (tons shipped) *
42

 
42

122

 
124

* DDG tons shipped converts wet tons to a dry ton equivalent amount

The above table shows only shipped volumes that flow through the Company's sales revenues. Total ethanol, corn oil and DDG production by the unconsolidated LLCs are higher, however, the portion of this volume that is sold directly to their customers is excluded here.
Plant Nutrient Group
The Plant Nutrient Group's results reflect price declines, particularly in base nutrient products, which has put pressure on overall margins. Volumes have also declined compared to the prior year as a result of lower farm income and a market that continues to experience uncertainty around future nutrient prices leading to lower immediate demand.

Storage capacity at our wholesale nutrient and farm center facilities, including leased storage, was approximately 488 thousand tons for dry nutrients and approximately 547 thousand tons for liquid nutrients at September 30, 2016 and approximately 508 thousand tons for dry nutrients and approximately 546 thousand tons for liquid nutrients at September 30, 2015. The decrease in our dry storage capacity is a result of the sale of Iowa farm center assets in the second quarter of 2016.

Tons of product shipped (including sales and service tons) for the three and nine months ended September 30, 2016 and 2015 were as follows:
(in thousands)
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Basic Nutrients (Tons)
219

 
240

 
980

 
956

Specialty Nutrients (Tons)
78

 
78

 
404

 
295

Other (Farm Centers, Lawn, Cob)
73

 
80

 
398

 
443

Total tons
370

 
398

 
1,782

 
1,694


Margins in our wholesale fertilizer business continue to be under pressure due to an uncertain outlook for future crop prices and decreased domestic demand for fertilizer.  The analysis of goodwill held by this reporting unit is subject to changes in key assumptions that affect the calculated fair value at the annual October 1 assessment date as the annual budgeting and long-term planning process is completed.  The goodwill fair value is highly sensitive to changes in those assumptions, including interest rates and outlook for future volume and margins.  If recent weakness in our wholesale fertilizer business affects our forecast for future years, this may result in a goodwill impairment charge.  Total goodwill in the wholesale nutrient reporting unit is $59.1 million.
Rail Group
The Rail Group saw a decline in average utilization rates from 91.6 percent in the third quarter of 2015 to 86.2 percent in the third quarter of 2016. Average lease rates remained relatively flat. Railcars, locomotives, and barges under management (owned, leased or managed for financial institutions in non-recourse arrangements) at September 30, 2016 were 23,203 compared to 23,301 at September 30, 2015.
Utilization rates are under pressure due to substantial increases in operational efficiency of the railroads in North America driving a decrease in the number of cars needed to move the same volume of freight. This has made it more difficult for us to re-market cars as they are returned from existing leases.
The Group will continue to focus on ways to strategically grow the rail fleet and look for opportunities to open new repair facilities.

29


Retail Group
The retail industry is highly competitive. Our stores compete with a variety of retail merchandisers, including home centers, department and hardware stores, as well as local and national grocers. In the fourth quarter of 2016, we announced the closure of our specialty food concept store.
Other
Our “Other” activities include corporate costs and functions that provide support and services to the operating segments. The results include expenses and benefits not allocated to the operating segments, including a portion of our ERP project.

30



Operating Results
The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Operations with a separate discussion by segment. Additional segment information is included in the Notes to the Condensed Consolidated Financial Statements herein in Note 12. Segment Information.
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Sales and merchandising revenues
$
859,612

 
$
909,093

 
$
2,811,735

 
$
3,015,022

Cost of sales and merchandising revenues
782,597

 
823,903

 
2,569,923

 
2,738,348

Gross profit
77,015

 
85,190

 
241,812

 
276,674

Operating, administrative and general expenses
78,767

 
88,698

 
234,053

 
251,044

Interest expense
4,441

 
6,147

 
18,046

 
16,210

Equity in earnings (loss) of affiliates, net
8,422

 
3,845

 
3,789

 
23,295

Other income, net
2,216

 
3,355

 
11,144

 
20,235

Income (loss) before income taxes
4,445

 
(2,455
)
 
4,646

 
52,950

Income (loss) attributable to noncontrolling interests
1,619

 
277

 
1,711

 
1,433

Income (loss) before income taxes attributable to The Andersons, Inc.
$
2,826

 
$
(2,732
)
 
$
2,935

 
$
51,517

Comparison of the three months ended September 30, 2016 with the three months ended September 30, 2015:
Grain Group
 
Three months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
550,189

 
$
545,320

Cost of sales and merchandising revenues
519,724

 
515,394

Gross profit
30,465

 
29,926

Operating, administrative and general expenses
27,743

 
31,087

Interest expense
1,737

 
668

Equity in earnings (loss) of affiliates, net
533

 
1,340

Other income, net
361

 
618

Income (loss) before income taxes
1,879

 
129

Income (loss) attributable to noncontrolling interest

 
(2
)
Income (loss) before income taxes attributable to The Andersons, Inc.
$
1,879


$
131


Operating results for the Grain Group have increased $1.7 million compared to the results of the same period last year. Sales and merchandising revenues increased $4.9 million. This was partially offset by an increase of cost of sales and merchandising revenues for a net favorable gross profit impact of $0.5 million. The increase was driven by improved trading income, and partially offset by modest declines in margins on sale of grain, income from blending operations, and limited opportunities for basis appreciation. Additionally, the 2016 divestiture of Iowa grain assets reduced gross profit by $1.5 million. However, it also provided a $3.0 million reduction in other, administrative and general expenses for a net positive impact of $1.5 million compared to the same quarter in 2015.

Operating, administrative and general expenses showed a decrease of $3.3 million compared to the same period in 2015 due primarily to decreases in labor and benefit costs and the Iowa divestiture noted above.

Equity in earnings of affiliates were not a major driver of performance in the current quarter with a decrease of $0.8 million compared to the same period in 2015.


31


Ethanol Group
 
Three months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
139,413

 
$
137,765

Cost of sales and merchandising revenues
133,112

 
131,500

Gross profit
6,301

 
6,265

Operating, administrative and general expenses
3,025

 
2,625

Interest expense
11

 
14

Equity in earnings (loss) of affiliates, net
7,889

 
2,505

Other income, net
6

 
36

Income (loss) before income taxes
11,160

 
6,167

Income (loss) attributable to noncontrolling interests
1,619

 
279

Income (loss) before income taxes attributable to The Andersons, Inc.
$
9,541

 
$
5,888


Operating results for the Ethanol Group increased $3.7 million from the same period last year. Sales and merchandising revenues increased $1.6 million compared to the results of the same period last year with cost of sales and merchandising revenues increasing by a similar amount. These changes were due to minor fluctuations in ethanol sales prices and volumes related to our consolidated operations during the quarter but were not a significant driver of results.

Equity in earnings of affiliates increased $5.4 million due to higher earnings from the unconsolidated ethanol LLCs. This was driven by a variety of factors. Corn and natural gas input prices declined more than the price of the ethanol being produced, increasing margins during the current period in the markets where we operate our unconsolidated ethanol facilities. Additionally, the ratio of price realized on ethanol by-products relative to the price of corn inputs improved.
Plant Nutrient Group
 
Three months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
101,770

 
$
149,303

Cost of sales and merchandising revenues
82,383

 
126,983

Gross profit
19,387

 
22,320

Operating, administrative and general expenses
25,746

 
32,593

Interest expense
1,583

 
1,788

Other income, net
711

 
947

Income (loss) before income taxes
$
(7,231
)
 
$
(11,114
)

Operating results for the Plant Nutrient Group improved $3.9 million from the same period last year. Sales and merchandising revenues decreased $47.5 million primarily due to significant declines in fertilizer prices as well as a 6.9 percent decline in total tons sold. The decrease in cost of sales and merchandising revenues follows the commodity price and volume declines noted above. Additionally, we saw margin compression in products used in agricultural end markets. The total impact of the volume decreases and lower margins to gross profit was a decrease of $2.9 million. The primary driver of performance during the current quarter has been pressure on farmer income causing nutrient purchases to be deferred or reduced.

Operating, administrative, and general expenses decreased $6.8 million, primarily due to decreased labor and benefits cost as well as a $2.0 million goodwill impairment charge related to the cob business in the prior year.








32


Rail Group
 
Three months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
38,201

 
$
44,758

Cost of sales and merchandising revenues
25,674

 
27,267

Gross profit
12,527

 
17,491

Operating, administrative and general expenses
4,528

 
6,165

Interest expense
1,696

 
1,506

Other income, net
451

 
2,093

Income (loss) before income taxes
$
6,754

 
$
11,913


Operating results for the Rail Group decreased $5.2 million from the same period last year. Sales and merchandising revenues decreased $6.6 million, partially offset by a $1.6 million decrease in cost of sales. The net gross profit decline of $5.0 million was primarily driven by a $2.6 million reduction in base leasing margin due to lower utilization rates and a decrease of $1.6 million in gains on the sale of railcars.

The decline in other income of $1.6 million was due mostly to a $0.6 million decline in end of lease settlement activity and prior year dividends of $0.5 million on our investment in Iowa Northern Railway Corporation which was sold in 2016.
Retail Group
 
Three months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
30,039

 
$
31,947

Cost of sales and merchandising revenues
21,704

 
22,759

Gross profit
8,335

 
9,188

Operating, administrative and general expenses
9,858

 
9,999

Interest expense
138

 
50

Other income, net
83

 
92

Income (loss) before income taxes
$
(1,578
)
 
$
(769
)

Operating results for the Retail Group declined from the same period last year, with a 4% decrease in customer count, partially offset by a slight decline in general expenses.
Other
 
Three months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$

 
$

Cost of sales and merchandising revenues

 

Gross profit

 

Operating, administrative and general expenses
7,867

 
6,229

Interest expense (income)
(724
)
 
2,121

Other income (loss), net
604

 
(431
)
Income (loss) before income taxes
$
(6,539
)
 
$
(8,781
)

The other operating loss not allocated to business segments decreased $2.2 million compared to the same period in the prior year. The majority of the change was a $2.8 million decrease in interest expense due to lower borrowing during the period as well as mark-to-market adjustments on interest rate derivative contracts. This was offset by increased operating,

33


administrative, and general expenses which were primarily due to the timing of certain employee benefit charges being incurred and allocated to the operating segments compared to the prior year.

Income Taxes

Income tax expense of $1.1 million was provided at 24.8% in the current quarter. In the third quarter of 2015, income tax benefit of $1.5 million was provided at 61.3%. The high 2015 effective tax rate is primarily due to the cumulative impact of revised full year earnings expectations and relatively low third quarter earnings, while the lower 2016 effective tax rate is primarily due to tax benefits related to railroad track maintenance credit transactions and tax benefits related to prior years.

The Company anticipates that its 2016 effective annual rate will be 30.7%. The Company’s actual 2015 effective tax rate was a benefit of 2.1%. The lower benefit rate in 2015 relative to our losses before income taxes is primarily due to the impact of the 2015 write-off of goodwill that did not provide a corresponding tax benefit. 
Comparison of the nine months ended September 30, 2016 with the nine months ended September 30, 2015:
Grain Group
 
Nine months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
1,611,992

 
$
1,705,393

Cost of sales and merchandising revenues
1,547,776

 
1,620,737

Gross profit
64,216

 
84,656

Operating, administrative and general expenses
83,127

 
89,020

Interest expense
7,185

 
5,066

Equity in earnings (loss) of affiliates, net
(6,141
)
 
10,764

Other income, net
3,671

 
2,682

Income (loss) before income taxes
(28,566
)
 
4,016

Income (loss) attributable to noncontrolling interest
(3
)
 
(8
)
Income (loss) before income taxes attributable to The Andersons, Inc.
$
(28,563
)

$
4,024


Operating results for the Grain Group have decreased $32.6 million compared to the results of the same period last year. Sales and merchandising revenues decreased $93.4 million. This was partially offset by a decrease of cost of sales and merchandising revenues of $73.0 million for a net unfavorable gross profit impact of $20.4 million. This decrease was primarily driven by elevated basis levels in the eastern corn belt causing significant reductions in space income and basis appreciation as well as reduced opportunities to earn margins on grain purchases and sales. Additionally, we saw reduced gross profit of $3.2 million from the sale of our Iowa grain assets in 2016.

Operating, administrative and general expenses showed a decrease of $5.9 million compared to the same period in 2015, $5.3 million of which was due to prior year expenses incurred at the underperforming assets in Iowa which were sold earlier in the year and lower labor and benefit expenses.

The reductions in gross profit and expenses noted above in relation to the sale of Iowa assets have combined for a net positive impact of $2.1 million so far this year, excluding the impact of the sale transaction itself.

Equity in earnings of affiliates decreased $16.9 million compared to the same period in 2015. This was driven by reduced performance at Lansing Trade Group.









34


Ethanol Group
 
Nine months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
396,626

 
$
413,130

Cost of sales and merchandising revenues
383,419

 
394,736

Gross profit
13,207

 
18,394

Operating, administrative and general expenses
8,380

 
8,684

Interest expense
34

 
50

Equity in earnings (loss) of affiliates, net
9,930

 
12,531

Other income, net
39

 
83

Income (loss) before income taxes
14,762

 
22,274

Income (loss) attributable to noncontrolling interests
1,714

 
1,441

Income (loss) before income taxes attributable to The Andersons, Inc.
$
13,048

 
$
20,833


Operating results for the Ethanol Group decreased $7.8 million compared to the results of the same period last year. Sales and merchandising revenues decreased $16.5 million, due to a decline in the average price of ethanol and a decrease in DDG prices. Ethanol gallons sold were up 1.3 percent compared to the prior year. The $11.3 million decrease in cost of sales is due to lower input costs, primarily corn and natural gas. The ethanol plants' performance was also unfavorably impacted by pricing pressure on ethanol byproducts compared to the prior year.
Plant Nutrient Group
 
Nine months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
588,797

 
$
660,440

Cost of sales and merchandising revenues
493,144

 
569,456

Gross profit
95,653

 
90,984

Operating, administrative and general expenses
74,814

 
80,136

Interest expense
5,559

 
5,106

Other income, net
2,728

 
2,441

Income (loss) before income taxes
$
18,008

 
$
8,183


Operating results for the Plant Nutrient Group increased $9.8 million from the same period last year. Sales and merchandising revenues decreased $71.6 million primarily due to significant declines in fertilizer prices. The decrease in cost of sales and merchandising revenues of $76.3 million exceeds the impact of lower sales noted above due to a decrease in the cost of raw materials and is also impacted by an increase in the proportion of higher margin specialty products. The total net positive impact to gross profit of the items noted above was $4.7 million.

Operating, administrative, and general expenses decreased $5.3 million due primarily to a $2.3 million decrease in labor and benefits as well as a $1.4 million reduction in maintenance costs compared to the prior year.








35


Rail Group
 
Nine months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
118,152

 
$
134,497

Cost of sales and merchandising revenues
77,463

 
81,435

Gross profit
40,689

 
53,062

Operating, administrative and general expenses
14,396

 
18,984

Interest expense
5,608

 
4,929

Other income, net
2,013

 
14,766

Income (loss) before income taxes
$
22,698

 
$
43,915


Operating results for the Rail Group decreased $21.2 million from the same period last year. Sales and merchandising revenues decreased $16.3 million, partially offset by a $4.0 million decrease in cost of sales. The net gross profit decline of $12.3 million was primarily driven by a decrease of $6.0 million in gains on the sale of railcars, and a $4.2 million reduction in base leasing margin caused by lower utilization rates compared to the prior year.

The decline in other income of $12.8 million is primarily driven by higher than normal lease settlement activity in the prior year.
Retail Group
 
Nine months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$
96,168

 
$
101,562

Cost of sales and merchandising revenues
68,121

 
71,984

Gross profit
28,047

 
29,578

Operating, administrative and general expenses
30,513

 
31,037

Interest expense
441

 
308

Other income, net
263

 
284

Income (loss) before income taxes
$
(2,644
)
 
$
(1,483
)

Operating results for the Retail Group declined by $1.2 million from the same period last year. This was driven primarily by a 3% decrease in customer count.
Other
 
Nine months ended September 30,
(in thousands)
2016
 
2015
Sales and merchandising revenues
$

 
$

Cost of sales and merchandising revenues

 

Gross profit

 

Operating, administrative and general expenses
22,823

 
23,183

Interest expense (income)
(781
)
 
751

Other income (loss), net
2,430

 
(21
)
Income (loss) before income taxes
$
(19,612
)
 
$
(23,955
)

The other operating loss not allocated to business segments decreased $4.3 million compared to the same period in the prior year. Interest expense declined due to mark-to-market adjustments on interest rate derivative contracts.

The majority of the change in other income was a $1.3 million gain on final settlement of our pension plan.

36


Income Taxes

Income tax expense of $1.5 million was provided at 32.0%. In 2015, income tax expense of $17.6 million was provided at 33.2%. The lower 2016 effective tax rate is due primarily to a tax benefit related to railroad track maintenance credit transactions.




37


Liquidity and Capital Resources
Working Capital
At September 30, 2016, we had working capital of $230.9 million. The following table presents changes in the components of current assets and current liabilities:
(in thousands)
September 30, 2016
 
September 30, 2015
 
Variance
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
78,158

 
$
40,658

 
$
37,500

Restricted cash
190

 
181

 
9

Accounts receivable, net
173,593

 
201,664

 
(28,071
)
Inventories
427,754

 
527,789

 
(100,035
)
Commodity derivative assets – current
59,837

 
60,965

 
(1,128
)
Deferred income taxes

 
6,735

 
(6,735
)
Other current assets
43,761

 
66,411

 
(22,650
)
Total current assets
783,293

 
904,403

 
(121,110
)
Current Liabilities:
 
 
 
 
 
Short-term debt

 
82,801

 
(82,801
)
Trade and other payables
356,931

 
466,428

 
(109,497
)
Customer prepayments and deferred revenue
15,725

 
23,581

 
(7,856
)
Commodity derivative liabilities – current
59,770

 
49,911

 
9,859

Accrued expenses and other current liabilities
68,465

 
71,593

 
(3,128
)
Current maturities of long-term debt
51,520

 
26,989

 
24,531

Total current liabilities
552,411

 
721,303

 
(168,892
)
Working Capital
$
230,882

 
$
183,100

 
$
47,782

In comparison to September 30, 2015, current assets decreased significantly. This was primarily due to declining commodity prices resulting in a decline in the value of both inventory and accounts receivable in our Grain and Plant Nutrient segments. This was partially offset by increases in our cash on hand compared to the prior year which is caused by a reduced need for margin deposits on our grain contracts due to the lower prices.
Current liabilities were down compared to the prior year due to many of the same factors driving the changes in our current assets. We paid off all of our short-term line of credit borrowings due to reduced margin needs in the grain business. Additionally, our accounts payable balance is lower due to substantial declines in prices for recently purchased fertilizer and grain inventory. This was partially offset by a greater portion of our long-term debt becoming current compared to the prior year.
Sources and Uses of Cash
Operating Activities
Our operating activities provided cash of $41.3 million and $57.8 million in the first nine months of 2016 and 2015, respectively. The cash provided year to date is primarily a result of seasonal changes in the use of working capital, particularly the fact that we have seen significant reductions in prepaid fertilizer balances compared to the beginning of the period and that our prepaid income tax balances have declined compared to the prior year.
Investing Activities
Investing activities provided cash of $4.8 million through the first nine months of 2016, compared to using cash of $212.4 million in the prior year. This change is due to $124.6 million for the prior year acquisition of Kay Flo Industries, Inc, net of cash received and prior to final working capital adjustments, as well as a $33.5 million decrease in net spend on railcar acquisitions and sales. Cash provided in the current year was positively impacted by the $54.3 million sale of underperforming assets in Iowa as well as the redemption of our investment in the Iowa Northern Railway Corporation which provided proceeds of $13.5 million. We also received $7.4 million in return of capital distributions from our ethanol investments. This was offset by a $13.8 million increase in purchases of other property, plant, and equipment. The variability in railcar purchases and sales is driven by timing of opportunities in the Rail Group asset market.

38


In 2016, we expect to spend a total of $99.8 million for the purchase of railcars, barges and related leases and capitalized modifications of railcars. We also expect to offset this amount by proceeds from the sales and dispositions of approximately $73.9 million during the year.
Additionally, total capital spending for 2016 on property, plant and equipment in our base business excluding rail leasing activity, but inclusive of information technology spending and the construction of a new corporate headquarters building is expected to be approximately $106.4 million.
Financing Activities
Financing activities used cash of $31.7 million and provided cash of $80.6 million for the nine months ended September 30, 2016 and 2015, respectively. Short term borrowings used cash of $15.0 million in the current year compared to providing cash of $79.7 million in the prior year. This change was driven primarily by declines in commodity prices and associated working capital requirements. In addition, the current year saw a decrease of $74.6 million in funds provided by long-term debt issuance, but this was largely offset by $49.1 million in prior year repurchases of the company's common stock. We also received $14.0 million in reimbursement payments related to the long-term financing agreement of our new corporate headquarters.
We are party to borrowing arrangements with a syndicate of banks that provides a total of $872.5 million in borrowings, which includes $22.5 million of debt of The Andersons Denison Ethanol LLC which is non-recourse to the Company. Of that total, we had $809.9 million remaining available for borrowing at September 30, 2016. Peak short-term borrowings to date were $412.0 million on January 6, 2016. Typically, our highest borrowing occurs in the late Winter and early Spring due to seasonal inventory requirements in our fertilizer and grain businesses.

We paid $13.0 million in dividends in the first nine months of 2016 compared to $12.0 million in the prior year. We paid $0.155 per common share for the dividends paid in January, April, and July 2016, and $0.14 per common share for the dividends paid in January, April, and July 2015. On August 26, 2016, we declared a cash dividend of $0.155 per common share payable on October 24, 2016 to shareholders of record on October 3, 2016.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. We are in compliance with all such covenants as of September 30, 2016. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by ethanol plant assets.
Because we are a significant consumer of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on our profitability. In addition, periods of high grain prices and/or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, we receive a return of cash.
We believe our sources of liquidity will be adequate to fund our operations, capital expenditures and payments of dividends in the foreseeable future.

39


Off-Balance Sheet Transactions

Our Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. We lease assets from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leasebacks. Rail Group assets we own or lease from a financial intermediary are generally leased to a customer under an operating lease. We also arrange non-recourse lease transactions under which we sell assets to a financial intermediary, and assign the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, we generally provide ongoing maintenance and management services for the financial intermediary, and receive a fee for such services. On most of the assets, we hold an option to purchase the assets at the end of the lease.

The following table describes our Rail Group asset positions at September 30, 2016: 
Method of Control
Financial Statement
 
Units
Owned-railcars available for sale
On balance sheet – current
 
255

Owned-railcar assets leased to others
On balance sheet – non-current
 
15,695

Railcars leased from financial intermediaries
Off balance sheet
 
4,282

Railcars – non-recourse arrangements
Off balance sheet
 
2,971

Total Railcars
 
 
23,203

Locomotive assets leased to others
On balance sheet – non-current
 
36

Locomotives leased from financial intermediaries
Off balance sheet
 
4

Total Locomotives
 
 
40

Barge assets leased to others
On balance sheet – non-current
 

Barge assets leased from financial intermediaries
Off balance sheet
 
65

Total Barges
 
 
65

In addition, we manage 413 railcars for third-party customers or owners for which we receive a fee.

40



Item 3. Quantitative and Qualitative Disclosures about Market Risk
For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2015. There were no material changes in market risk, specifically commodity and interest rate risk during the quarter ended September 30, 2016.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer ("Certifying Officers"), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on the results of this evaluation, management concluded that, as of September 30, 2016, the Company's disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
Management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2015.  As required by Rule 13a-15(d) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of any change in the Company’s internal controls over financial reporting that have materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting. The Company is undertaking the phased implementation of an ERP software system. The Company believes it is maintaining and monitoring appropriate internal controls during the implementation period and further believes that its internal control environment will be enhanced as a result of this implementation.  There have been no other changes in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.




41



Part II. Other Information

Item 1. Legal Proceedings
We are currently subject to various claims and suits arising in the ordinary course of business, which include environmental issues, employment claims, contractual disputes, and defensive counter claims. We accrue liabilities where litigation losses are deemed probable and estimable. We believe it is unlikely that the results of our current legal proceedings, even if unfavorable, will be materially different from what we currently have accrued. There can be no assurance, however, that any claims or suits arising in the future, whether taken individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations.

Item 1A. Risk Factors
Our operations are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this Form 10-Q and could have a material adverse impact on our financial results. These risks can be impacted by factors beyond our control as well as by errors and omissions on our part. The most significant factors known to us that could materially adversely affect our business, financial condition or operating results are described in our 2015 Form 10-K (Item 1A).

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

No sales or repurchases of shares have occurred in 2016.

42


Item 6. Exhibits
(a) Exhibits
 
 
 
 
No.
  
Description
 
 
12
  
Computation of Ratio of Earnings to Fixed Charges
 
 
31.1
  
Certification of the Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a)
 
 
31.2
  
Certification of the Chief Financial Officer under Rule 13(a)-14(a)/15d-14(a)
 
 
32.1
  
Certifications Pursuant to 18 U.S.C. Section 1350
 
 
 
101
 
Financial Statements from the interim report on Form 10-Q of The Andersons, Inc. for the period ended September 30, 2016, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statement of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.


43


Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
THE ANDERSONS, INC.
(Registrant)
 
 
Date: November 8, 2016
 
By /s/ Patrick E. Bowe
 
 
Patrick E. Bowe
 
 
Chief Executive Officer (Principal Executive Officer)
 
 
Date: November 8, 2016
 
By /s/ John Granato
 
 
John Granato
 
 
Chief Financial Officer (Principal Financial Officer)
 
 


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Exhibit Index
The Andersons, Inc.
 
 
 
 
No.
  
Description
 
 
 
12
  
Computation of Ratio of Earnings to Fixed Charges
 
 
31.1
  
Certification of the Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a)
 
 
31.2
  
Certification of the Chief Financial Officer under Rule 13(a)-14(a)/15d-14(a)
 
 
32.1
  
Certifications Pursuant to 18 U.S.C. Section 1350
 
 
 
101
 
Financial Statements from the interim report on Form 10-Q of The Andersons, Inc. for the period ended September 30, 2016, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statement of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.


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