The Andersons, Inc. - 10-Q quarterly report FY2019 Q2

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



☐	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 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 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,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated Filer	☐
Non-accelerated filer	¨	Smaller reporting company	☐
Emerging growth company	¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

The registrant had approximately 32.6 million common shares outstanding at July 26, 2019.

Securities registered pursuant to Section 12(b) of the Act:



Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common stock, $0.00 par value, $0.01 stated value	ANDE	The NASDAQ Stock Market LLC

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THE ANDERSONS, INC.

INDEX



	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets – June 30, 2019, December 31, 2018 and June 30, 2018	3
Condensed Consolidated Statements of Operations – Three and Six months ended June 30, 2019 and 2018	5
Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Six months ended June 30, 2019 and 2018	6
Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2019 and 2018	7
Condensed Consolidated Statements of Equity – Three and Six months ended June 30, 2019 and 2018	8
Notes to Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosures about Market Risk	43
Item 4. Controls and Procedures	43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	44
Item 1A. Risk Factors	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 4. Mine Safety Disclosure	44
Item 6. Exhibits	45

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Part I. Financial Information

Item 1. Financial Statements

The Andersons, Inc. Condensed Consolidated Balance Sheets (Unaudited)(In thousands)

	June 30, 2019		December 31, 2018		June 30, 2018
Assets
Current assets:
Cash and cash equivalents	$	11,087	$	22,593	$	58,611
Accounts receivable, net	712,294		207,285		218,476
Inventories (Note 2)	753,641		690,804		495,611
Commodity derivative assets – current (Note 5)	233,015		51,421		54,259
Other current assets	58,439		50,703		42,648
Assets held for sale	151		392		9,816
Total current assets	1,768,627		1,023,198		879,421
Other assets:
Commodity derivative assets – noncurrent (Note 5)	6,161		480		1,008
Goodwill	135,872		6,024		6,024
Other intangible assets, net	188,818		99,138		105,289
Right of use assets, net	74,073		—		—
Other assets, net	21,841		22,341		26,888
Equity method investments	120,929		242,326		232,159
	547,694		370,309		371,368
Rail Group assets leased to others, net (Note 3)	559,711		521,785		458,424
Property, plant and equipment, net (Note 3)	695,827		476,711		408,575
Total assets	$	3,571,859	$	2,392,003	$	2,117,788

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The Andersons, Inc. Condensed Consolidated Balance Sheets (continued) (Unaudited)(In thousands)

	June 30, 2019			December 31, 2018			June 30, 2018
Liabilities and equity
Current liabilities:
Short-term debt (Note 4)	$	426,125		$	205,000		$	185,000
Trade and other payables	527,250			462,535			282,221
Customer prepayments and deferred revenue	49,761			32,533			16,103
Commodity derivative liabilities – current (Note 5)	69,369			32,647			85,160
Accrued expenses and other current liabilities	165,383			79,046			74,512
Current maturities of long-term debt (Note 4)	66,678			21,589			13,700
Total current liabilities	1,304,566			833,350			656,696
Long-term lease liabilities	48,401			—			—
Other long-term liabilities	18,398			32,184			30,325
Commodity derivative liabilities – noncurrent (Note 5)	3,985			889			3,202
Employee benefit plan obligations	22,019			22,542			26,131
Long-term debt, less current maturities (Note 4)	1,007,012			496,187			435,580
Deferred income taxes	146,839			130,087			118,864
Total liabilities	2,551,220			1,515,239			1,270,798
Commitments and contingencies (Note 15)
Shareholders’ equity:
Common shares, without par value (63,000 shares authorized; 33,357 shares issued at 6/30/2019, 29,430 shares issued at 12/31/2018 and 6/30/2018)	137			96			96
Preferred shares, without par value (1,000 shares authorized; none issued)	—			—			—
Additional paid-in-capital	331,186			224,396			223,259
Treasury shares, at cost (173, 936 and 943 shares at 6/30/2019, 12/31/2018 and 6/30/2018, respectively)	(6,449		)	(35,300		)	(35,561		)
Accumulated other comprehensive income (loss)	(6,241		)	(6,387		)	(5,347		)
Retained earnings	651,481			647,517			635,438
Total shareholders’ equity of The Andersons, Inc.	970,114			830,322			817,885
Noncontrolling interests	50,525			46,442			29,105
Total equity	1,020,639			876,764			846,990
Total liabilities and equity	$	3,571,859		$	2,392,003		$	2,117,788

See Notes to Condensed Consolidated Financial Statements

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The Andersons, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)(In thousands, except per share data)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Sales and merchandising revenues	$	2,325,041		$	911,402		$	4,301,833		$	1,547,141
Cost of sales and merchandising revenues	2,164,313			820,928			4,031,441			1,392,962
Gross profit	160,728			90,474			270,392			154,179
Operating, administrative and general expenses	106,918			59,853			220,267			124,110
Asset impairment	3,081			6,272			3,081			6,272
Interest expense	15,727			7,825			31,637			14,824
Other income:
Equity in earnings (loss) of affiliates, net	(157		)	9,803			1,362			13,376
Other income (loss), net	5,563			2,828			4,049			4,514
Income (loss) before income taxes	40,408			29,155			20,818			26,863
Income tax provision (benefit)	10,997			7,742			5,555			7,432
Net income (loss)	29,411			21,413			15,263			19,431
Net income (loss) attributable to the noncontrolling interests	(477		)	(116		)	(632		)	(398		)
Net income (loss) attributable to The Andersons, Inc.	$	29,888		$	21,529		$	15,895		$	19,829
Per common share:
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders	$	0.92		$	0.76		$	0.49		$	0.70
Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders	$	0.91		$	0.76		$	0.48		$	0.70

See Notes to Condensed Consolidated Financial Statements

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The Andersons, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)(In thousands)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	29,411		$	21,413		$	15,263		$	19,431
Other comprehensive income (loss), net of tax:
Change in fair value of convertible preferred securities (net of income tax of $0, $0, $0 and $(87))	—			—			—			(87		)
Change in unrecognized actuarial loss and prior service cost (net of income tax of $(250), $(86), $(293) and $(101))	(728		)	(287		)	(854		)	(338		)
Cash flow hedge activity (net of income tax of $(1,974), $17, $(3,175) and $17)	(5,952		)	51			(9,574		)	51
Foreign currency translation adjustments (net of income tax of $0, $0, $0 and $0)	(2,035		)	(1,123		)	10,574			(2,273		)
Other comprehensive income (loss)	(8,715		)	(1,359		)	146			(2,647		)
Comprehensive income (loss)	20,696			20,054			15,409			16,784
Comprehensive income (loss) attributable to the noncontrolling interests	(477		)	(116		)	(632		)	(398		)
Comprehensive income (loss) attributable to The Andersons, Inc.	$	21,173		$	20,170		$	16,041		$	17,182

See Notes to Condensed Consolidated Financial Statements

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The Andersons, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)(In thousands)



	Six months ended June 30,
	2019			2018
Operating Activities
Net income (loss)	$	15,263		$	19,431
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization	64,146			45,232
Bad debt expense (recovery)	1,703			(837		)
Equity in (earnings) losses of affiliates, net of dividends	(1,034		)	(11,192		)
Gains on sales of Rail Group assets and related leases	(1,298		)	(3,989		)
Loss (gain) on sales of assets	106			(342		)
Stock-based compensation expense	7,292			3,006
Deferred federal income tax	5,793			—
Asset impairment	3,081			6,272
Other	1,102			(138		)
Changes in operating assets and liabilities:
Accounts receivable	(181,917		)	(33,859		)
Inventories	394,630			151,095
Commodity derivatives	(82,933		)	34,850
Other assets	27,420			17,552
Payables and other accrued expenses	(338,201		)	(271,010		)
Net cash provided by (used in) operating activities	(84,847		)	(43,929		)
Investing Activities
Acquisition of business, net of cash acquired	(147,693		)	—
Purchases of Rail Group assets	(43,435		)	(68,087		)
Proceeds from sale of Rail Group assets	7,389			40,967
Purchases of property, plant and equipment and capitalized software	(87,209		)	(54,300		)
Proceeds from sale of assets	795			34,981
Purchase of investments	(1,240		)	—
Net cash provided by (used in) investing activities	(271,393		)	(46,439		)
Financing Activities
Net change in short-term borrowings	(660		)	163,000
Proceeds from issuance of long-term debt	748,099			50,000
Payments of long-term debt	(390,528		)	(110,150		)
Proceeds from noncontrolling interest owner	4,715			21,806
Payments of debt issuance costs	(5,788		)	(787		)
Dividends paid	(11,041		)	(9,312		)
Other	(387		)	(497		)
Net cash provided by (used in) financing activities	344,410			114,060
Effect of exchange rates on cash and cash equivalents	324			—
Increase (Decrease) in cash and cash equivalents	(11,506		)	23,692
Cash and cash equivalents at beginning of period	22,593			34,919
Cash and cash equivalents at end of period	$	11,087		$	58,611

See Notes to Condensed Consolidated Financial Statements

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The Andersons, Inc.

Condensed Consolidated Statements of Equity

(Unaudited)(In thousands, except per share data)



	Three Months Ended
	Common Shares		Additional Paid-in Capital		Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Noncontrolling Interests			Total
Balance at March 31, 2018	$	96	$	221,990	$	(36,028	)	$	(3,988	)	$	618,572		$	22,115		$	822,757
Net income (loss)											21,529			(116		)	21,413
Other comprehensive income (loss)								(1,359		)							(1,359		)
Cash received from noncontrolling interest														7,106			7,106
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (12 shares)			1,269		467												1,736
Dividends declared ($0.165 per common share)											(4,663		)				(4,663		)
Balance at June 30, 2018	$	96	$	223,259	$	(35,561	)	$	(5,347	)	$	635,438		$	29,105		$	846,990

Balance at March 31, 2019	$	137	$	324,753	$	(7,216	)	$	2,474		$	627,136		$	51,002		$	998,286
Net income (loss)											29,888			(477		)	29,411
Other comprehensive income (loss)								(8,544		)							(8,544		)
Amounts reclassified from accumulated other comprehensive loss								(171		)							(171		)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (20 shares)			1,738		754												2,492
Dividends declared ($0.170 per common share)											(5,530		)				(5,530		)
Stock award purchase price accounting adjustment			4,695														4,695
Restricted share award dividend equivalents					13						(13		)				—
Balance at June 30, 2019	$	137	$	331,186	$	(6,449	)	$	(6,241	)	$	651,481		$	50,525		$	1,020,639

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	Six Months Ended
	Common Shares		Additional Paid-in Capital			Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Noncontrolling Interests			Total
Balance at December 31, 2017	$	96	$	224,622		$	(40,312	)	$	(2,700	)	$	633,496		$	7,697		$	822,899
Net income (loss)												19,829			(398		)	19,431
Other comprehensive income (loss)									(2,647		)							(2,647		)
Cash received from noncontrolling interest															21,806			21,806
Adoption of accounting standard, net of income tax of $2,869												(8,441		)				(8,441		)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (120 shares)			(1,363		)	4,631												3,268
Dividends declared ($0.33 per common share)												(9,326		)				(9,326		)
Restricted share award dividend equivalents						120						(120		)				—
Balance at June 30, 2018	$	96	$	223,259		$	(35,561	)	$	(5,347	)	$	635,438		$	29,105		$	846,990

Balance at December 31, 2018	$	96	$	224,396		$	(35,300	)	$	(6,387	)	$	647,517		$	46,442		$	876,764
Net income (loss)												15,895			(632		)	15,263
Other comprehensive income (loss)									(11,314		)							(11,314		)
Amounts reclassified from accumulated other comprehensive loss									11,460									11,460
Cash received from noncontrolling interest															4,715			4,715
Adoption of accounting standard, net of income tax of ($237)												(711		)				(711		)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (764 shares)			(21,018		)	28,698												7,680
Dividends declared ($0.34 per common share)												(11,059		)				(11,059		)
Stock awards granted due to acquisition	41		127,800															127,841
Restricted share award dividend equivalents			8			153						(161		)				—
Balance at June 30, 2019	$	137	$	331,186		$	(6,449	)	$	(6,241	)	$	651,481		$	50,525		$	1,020,639

See Notes to Condensed Consolidated Financial Statements

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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, 2019. An unaudited Condensed Consolidated Balance Sheet as of June 30, 2018 has been included as the Company operates in several seasonal industries.

The Condensed Consolidated Balance Sheet data at December 31, 2018 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, 2018 (the “2018 Form 10-K”).

New Accounting Standards

Leasing

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") (No. 2016-02, Leases (ASC 842). The FASB issued subsequent amendments to the initial guidance in July 2018 with ASU 2018-10 and in August 2018 with ASU 2018-11. ASC 842 supersedes the current accounting for leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. Effective January 1, 2019, the Company adopted the standard using the Comparative Under ASC 840 method, which requires lease assets and liabilities to be recognized in the 2019 balance sheet and statement of equity and forgo the comparative reporting requirements under the modified retrospective transition method. The Company also made an accounting policy election to keep short-term leases less than twelve months off the balance sheet for all classes of underlying assets, as well as elected to use the practical expedient that allows the combination of lease and non-lease contract components in all of its underlying asset categories. In addition, the Company elected to apply the package of practical expedients that allows entities to forego reassessing at the transition date: (1) whether any expired or existing contracts are or contain leases; (2) lease classification for any expired or existing leases; and (3) whether unamortized initial direct costs for existing leases meet the definition of initial direct costs under the new guidance. See Note 14 for additional information.

Other applicable standards

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU reduces the complexity of accounting for costs of implementing a cloud computing service arrangement. This standard aligns the accounting for implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. The guidance is effective for fiscal years beginning after December 15, 2019. We have evaluated the impact of this new standard on our consolidated financial statements noting it is not material. Early adoption is permitted, but the Company has not chosen to do so at this time.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to

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retained earnings in their consolidated financial statements. The Company adopted this standard in the current year which did not have a material impact on its financial statements or disclosures.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The FASB issued subsequent amendments to the initial guidance in November 2018, April 2019 and May 2019 with ASU 2018-19, ASU 2019-04 and ASU 2019-05, respectively. This update changes the accounting for credit losses on loans and held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. This includes allowances for trade receivables. The Company has not historically incurred significant credit losses and does not currently anticipate circumstances that would lead to a CECL approach differing from the Company's existing allowance estimates in a material manner. The guidance is effective for fiscal years beginning after December 15, 2019 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted, but the Company does not plan to do so.

2. Inventories

Major classes of inventories are as follows:



(in thousands)	June 30, 2019		December 31, 2018		June 30, 2018
Grain and other agricultural products	$	603,318	$	527,471	$	385,118
Frac sand and propane	9,287		—		—
Ethanol and co-products	26,185		11,918		22,828
Plant nutrients and cob products	109,156		145,693		82,230
Railcar repair parts	5,695		5,722		5,435
	$	753,641	$	690,804	$	495,611

Inventories on the Condensed Consolidated Balance Sheets at June 30, 2019, and June 30, 2018, do not include 1.3 million and 0.1 million bushels of grain, respectively, held in storage for others. Grain inventories held in storage for others were de minimis as of December 31, 2018. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.

3. Property, Plant and Equipment

The components of Property, plant and equipment, net are as follows:



(in thousands)	June 30, 2019		December 31, 2018		June 30, 2018
Land	$	39,241	$	29,739	$	29,579
Land improvements and leasehold improvements	84,127		68,826		68,384
Buildings and storage facilities	327,418		284,998		280,226
Machinery and equipment	514,030		393,640		377,202
Construction in progress	164,532		102,394		37,456
	1,129,348		879,597		792,847
Less: accumulated depreciation	433,521		402,886		384,272
	$	695,827	$	476,711	$	408,575

Depreciation expense on property, plant and equipment was $32.7 million and $23.2 million for the six months ended June 30, 2019 and 2018, respectively. Additionally, depreciation expense on property, plant and equipment was $15.0 million and $11.5 million for the three months ended June 30, 2019 and 2018, respectively.

In the second quarter of 2019, the Company recorded a $3.1 million impairment charge related to its remaining Tennessee facilities in the Trade group. The Company wrote down the value of these assets to the extent their carrying values exceeded their fair value. The Company classified the significant assumptions used to determine the fair value of the impaired assets as Level 3 inputs in the fair value hierarchy.

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Rail Group Assets

The components of Rail Group assets leased to others are as follows:



(in thousands)	June 30, 2019		December 31, 2018		June 30, 2018
Rail Group assets leased to others	$	688,320	$	640,349	$	564,555
Less: accumulated depreciation	128,609		118,564		106,131
	$	559,711	$	521,785	$	458,424

Depreciation expense on Rail Group assets leased to others amounted to $13.7 million and $12.2 million for the six months ended June 30, 2019 and 2018, respectively. Additionally, depreciation expense on Rail Group assets leased to others amounted to $7.0 million and $6.0 million for the three months ended June 30, 2019 and 2018, respectively.

4. Debt

Short-term and long-term debt at June 30, 2019, December 31, 2018 and June 30, 2018 consisted of the following:



(in thousands)	June 30, 2019		December 31, 2018		June 30, 2018
Short-term Debt – Non-Recourse (a)	$	75,476	$	—	$	—
Short-term Debt – Recourse	350,649		205,000		185,000
Total Short-term Debt	$	426,125	$	205,000	$	185,000

Current Maturities of Long-term Debt – Non-Recourse (b)	$	8,903	$	4,842	$	2,922
Current Maturities of Long-term Debt – Recourse (c)	40,785		16,747		10,778
Finance lease liability (d)	16,990		—		—
Total Current Maturities of Long-term Debt	$	66,678	$	21,589	$	13,700

Long-term Debt, Less: Current Maturities – Non-Recourse (b)	$	198,560	$	146,353	$	72,290
Long-term Debt, Less: Current Maturities – Recourse (c)	786,512		349,834		363,290
Finance lease liability (d)	21,940		—		—
Total Long-term Debt, Less: Current Maturities	$	1,007,012	$	496,187	$	435,580

(a) In conjunction with the recent acquisition, the Company assumed Thompsons' revolving line of credit and a term loan with a syndicate of banks, which are non-recourse to the Company. The credit agreement provides the Company with a maximum availability of $183.4 million and had $107.9 million available for borrowing on this line of credit as of June 30, 2019. Any borrowings under the line of credit bear interest at variable rates, which are based on LIBOR or Bankers’ Acceptances plus an applicable spread. The maturity date for the revolving line of credit is June 26, 2023.

(b) In conjunction with the recent acquisition, the Company also assumed a term loan with a syndicate of banks. The term loan had a balance of $33.9 million at June 30, 2019. Interest rates for the term loans are based on LIBOR plus an applicable spread. Payments of $0.6 million are made on a quarterly basis.

(c) On January 11, 2019 the Company entered into 5-year term loan in the amount of $250 million and a 7-year term loan of $250 million. A portion of the term loans were used to pay down debt assumed in the LTG acquisition. Interest rates are based on LIBOR plus an applicable spread. Payments on the term loans will be made on a quarterly basis. As of June 30, 2019, $6.3 million has been paid on the 5-year term loan and $6.3 million has been paid on the 7-year term loan.

(d) See Note 14, Leases, for additional information. June 30, 2019 balances include the former build-to-suit lease that was reclassed from other current liabilities and other long-term liabilities as a result of the new lease standard.

The total borrowing capacity of the Company's lines of credit at June 30, 2019 was $1,628.4 million of which the Company had a total of $1,006.1 million available for borrowing under its lines of credit, subject to certain limitations based on debt covenants. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company is in compliance with all financial covenants as of June 30, 2019.

5. Derivatives

The Company’s operating results are affected by changes to commodity prices. The Trade 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 purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over-the-counter forward and option contracts with various counterparties. These contracts are primarily traded via regulated

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commodity exchanges. The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Most contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.

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

Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in cost of sales and merchandising revenues.

Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Condensed Consolidated Balance Sheets.

The following table presents at June 30, 2019, December 31, 2018 and June 30, 2018, 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:



	June 30, 2019					December 31, 2018				June 30, 2018
(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)	$	109,346		$	—	$	14,944	$	—	$	(52,888	)	$	—
Fair value of derivatives	(5,996		)	—		22,285		—		68,244			—
Balance at end of period	$	103,350		$	—	$	37,229	$	—	$	15,356		$	—

The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:



	June 30, 2019
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	166,652		$	6,748		$	3,360		$	57		$	176,817
Commodity derivative liabilities	(42,983		)	(587		)	(72,729		)	(4,042		)	(120,341		)
Cash collateral paid (received)	109,346			—			—			—			109,346
Balance sheet line item totals	$	233,015		$	6,161		$	(69,369	)	$	(3,985	)	$	165,822

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	December 31, 2018
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	43,463		$	484		$	706		$	5		$	44,658
Commodity derivative liabilities	(6,986		)	(4		)	(33,353		)	(894		)	(41,237		)
Cash collateral (received)	14,944			—			—			—			14,944
Balance sheet line item totals	$	51,421		$	480		$	(32,647	)	$	(889	)	$	18,365



	June 30, 2018
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	123,917		$	1,022		$	626		$	36		$	125,601
Commodity derivative liabilities	(16,770		)	(14		)	(85,786		)	(3,238		)	(105,808		)
Cash collateral (received)	(52,888		)	—			—			—			(52,888		)
Balance sheet line item totals	$	54,259		$	1,008		$	(85,160	)	$	(3,202	)	$	(33,095	)

The net pretax gains and losses on commodity derivatives not designated as hedging instruments included in the Company’s Condensed Consolidated Statements of Operations and the line item in which they are located for the three and six months ended June 30, 2019 and 2018 are as follows:



	Three months ended June 30,					Six months ended June 30,
(in thousands)	2019			2018		2019		2018
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues	$	(13,364	)	$	45,844	$	57,291	$	20,608

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The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2019, December 31, 2018 and June 30, 2018:



	June 30, 2019
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	648,434	—	—	—
Soybeans	59,594	—	—	—
Wheat	93,621	—	—	—
Oats	40,582	—	—	—
Ethanol	—	211,352	—	—
Corn oil	—	—	8,809	—
Other	23,875	2,532	—	3,179
Subtotal	866,106	213,884	8,809	3,179
Exchange traded:
Corn	317,405	—	—	—
Soybeans	52,762	—	—	—
Wheat	55,150	—	—
Oats	1,045	—	—	—
Ethanol	—	82,988	—	—
Propane	—	13,230	—	—
Other	—	35	—	180
Subtotal	426,362	96,253	—	180
Total	1,292,468	310,137	8,809	3,359



	December 31, 2018
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	250,408	—	—	—
Soybeans	22,463	—	—	—
Wheat	14,017	—	—	—
Oats	26,230	—	—	—
Ethanol	—	244,863	—	—
Corn oil	—	—	2,920	—
Other	494	2,000	—	66
Subtotal	313,612	246,863	2,920	66
Exchange traded:
Corn	130,585	—	—	—
Soybeans	26,985	—	—	—
Wheat	33,760	—	—	—
Oats	1,475	—	—	—
Ethanol	—	77,112	—	—
Subtotal	192,805	77,112	—	—
Total	506,417	323,975	2,920	66

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	June 30, 2018
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	272,979	—	—	—
Soybeans	49,208	—	—	—
Wheat	11,163	—	—	—
Oats	36,612	—	—	—
Ethanol	—	332,761		—
Corn oil	—	—	6,158	—
Other	82	1,500		77
Subtotal	370,044	334,261	6,158	77
Exchange traded:
Corn	133,730	—	—	—
Soybeans	45,775	—	—	—
Wheat	48,105	—	—	—
Oats	1,190	—	—	—
Ethanol	—	140,364	—	—
Subtotal	228,800	140,364	—	—
Total	598,844	474,625	6,158	77

Interest Rate and Other Derivatives

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The gains or losses on the derivatives are recorded in Other Comprehensive Income (Loss) and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

At June 30, 2019, December 31, 2018 and June 30, 2018, the Company had recorded the following amounts for the fair value of the Company's other derivatives:



(in thousands)	June 30, 2019			December 31, 2018			June 30, 2018
Derivatives not designated as hedging instruments
Interest rate contracts included in Other long-term assets (Other long-term liabilities)	$	(10,750	)	$	(353	)	$	(37	)
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)	$	(22	)	$	(1,122	)	$	(1,109	)
Derivatives designated as hedging instruments
Interest rate contract included in Accrued expenses and other current liabilities	$	—		$	—		$	(88	)
Interest rate contract included in Other assets (Other long-term liabilities)	$	(10,587	)	$	(168	)	$	155

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The recording of derivatives gains and losses and the financial statement line in which they are located are as follows:



	Three months ended June 30,						Six months ended June 30,
(in thousands)	2019			2018			2019			2018
Derivatives not designated as hedging instruments
Interest rate derivative gains (losses) included in Interest income (expense)	$	(1,065	)	$	351		$	(2,055	)	$	1,141
Foreign currency derivative gains (losses) included in Other income, net	$	(366	)	$	(413	)	$	(1,833	)	$	(1,535	)
Derivatives designated as hedging instruments
Interest rate derivative gains (losses) included in Other Comprehensive Income (Loss)	$	(7,926	)	$	67		$	(12,917	)	$	67
Interest rate derivatives gains (losses) included in Interest income (expense)	$	—		$	—		$	165		$	—

Outstanding interest rate derivatives, as of June 30, 2019, are as follows:



Interest Rate Hedging Instrument		Year Entered	Year of Maturity	Initial Notional Amount (in millions)		Description	Interest Rate
Long-term
Swap		2014	2023	$	23.0	Interest rate component of debt - not accounted for as a hedge	1.9%
Collar		2016	2021	$	40.0	Interest rate component of debt - not accounted for as a hedge	3.5% to 4.8%
Swap	*	2016	2019	$	50.0	Interest rate component of debt - not accounted for as a hedge	1.2%
Swap	*	2017	2022	$	20.0	Interest rate component of debt - accounted for as a hedge	1.8%
Swap	*	2018	2023	$	10.0	Interest rate component of debt - accounted for as a hedge	2.6%
Swap	*	2018	2025	$	20.0	Interest rate component of debt - accounted for as a hedge	2.7%
Swap		2018	2021	$	40.0	Interest rate component of debt - accounted for as a hedge	2.6%
Swap		2019	2021	$	25.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap		2019	2021	$	50.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap		2019	2025	$	100.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap		2019	2025	$	50.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap		2019	2025	$	50.0	Interest rate component of debt - accounted for as a hedge	2.5%

* Acquired on 1/1/2019 in conjunction with the acquisition of LTG.

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6. Employee Benefit Plans

The following are components of the net periodic benefit cost for the pension and postretirement benefit plans maintained by the Company for the three and six months ended June 30, 2019 and 2018:



	Pension Benefits
(in thousands)	Three months ended June 30,				Six months ended June 30,
(in thousands)	2019		2018		2019		2018
Interest cost	$	29	$	32	$	58	$	65
Recognized net actuarial loss	58		61		116		122
Benefit cost	$	87	$	93	$	174	$	187



	Postretirement Benefits
(in thousands)	Three months ended June 30,						Six months ended June 30,
(in thousands)	2019			2018			2019			2018
Service cost	$	64		$	75		$	138		$	162
Interest cost	221			190			427			377
Amortization of prior service cost	(228		)	(228		)	(456		)	(456		)
Benefit cost	$	57		$	37		$	109		$	83

7. Revenue

Many of the Company’s revenues are generated from contracts that are outside the scope of ASC 606 and thus are accounted for under other accounting standards. Specifically, many of the Company's Trade and Ethanol sales contracts are derivatives under ASC 815, Derivatives and Hedging and the Rail Group's leasing revenue is accounted for under ASC 842, Leases. The breakdown of revenues between ASC 606 and other standards is as follows:



	Three months ended June 30,				Six months ended June 30,
(in thousands)	2019		2018		2019		2018
Revenues under ASC 606	$	494,266	$	356,883	$	809,438	$	550,533
Revenues under ASC 842	31,836		26,228		60,704		52,257
Revenues under ASC 815	1,798,939		528,291		3,431,691		944,351
Total Revenues	$	2,325,041	$	911,402	$	4,301,833	$	1,547,141

The remainder of this note applies only to those revenues that are accounted for under ASC 606.

Disaggregation of revenue

The following tables disaggregate revenues under ASC 606 by major product/service line for the three and six months ended June 30, 2019 and 2018, respectively:



	Three months ended June 30, 2019
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Total
Specialty nutrients	$	31,870	$	—	$	87,665	$	—	$	119,535
Primary nutrients	22,364		—		174,907		—		197,271
Services	7,745		3,547		1,696		9,278		22,266
Products and co-products	55,943		32,047		—		—		87,990
Frac sand and propane	56,767		—		—		—		56,767
Other	2,537		35		6,309		1,556		10,437
Total	$	177,226	$	35,629	$	270,577	$	10,834	$	494,266

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	Three months ended June 30, 2018
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Total
Specialty nutrients	$	—	$	—	$	94,281	$	—	$	94,281
Primary nutrients	—		—		200,288		—		200,288
Service	3,381		2,760		2,412		9,308		17,861
Co-products	—		32,462		—		—		32,462
Other	292		—		6,124		5,575		11,991
Total	$	3,673	$	35,222	$	303,105	$	14,883	$	356,883



	Six months ended June 30, 2019
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Total
Specialty nutrients	$	35,808	$	—	$	156,065	$	—	$	191,873
Primary nutrients	22,791		—		227,996		—		250,787
Service	8,570		6,983		1,858		19,225		36,636
Co-products	118,701		53,517		—		—		172,218
Frac sand and propane	137,230		—		—		—		137,230
Other	3,697		35		13,183		3,779		20,694
Total	$	326,797	$	60,535	$	399,102	$	23,004	$	809,438



	Six months ended June 30, 2018
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Total
Specialty nutrients	$	—	$	—	$	169,359	$	—	$	169,359
Primary nutrients	—		—		253,507		—		253,507
Service	7,799		5,305		2,621		17,425		33,150
Co-products	—		59,108		—		—		59,108
Other	502		—		13,235		21,672		35,409
Total	$	8,301	$	64,413	$	438,722	$	39,097	$	550,533

Approximately 4% and 5% of revenues accounted for under ASC 606 during each of the three and months ended June 30, 2019 and 2018, are recorded over time which primarily relates to service revenues noted above. Additionally, during the six months ended June 30, 2019 and 2018, approximately 4% and 6% of revenues were accounted for under ASC 606, respectively.

Contract balances

The opening and closing balances of the Company’s contract liabilities are as follows:



(in thousands)	2019		2018
Balance at January 1,	$	28,858	$	25,520
Balance at March 31,	146,824		67,715
Balance at June 30,	48,225		10,047

Exclusive of acquisition related impacts, the residual difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. The contract liabilities have two main drivers, including Trade prepayments by counter parties and payments for primary and specialty nutrients received in advance of fulfilling our performance obligations under our customer contracts. The primary and specialty business records contract liabilities for payments received in advance of fulfilling our performance obligations under our customer contracts. Further, due to seasonality of this business, contract liabilities were built up in the

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first quarter of the year. In the second quarter, the decrease in liabilities is due to the revenue recognized in the current period relating to the liability built up in the first quarter.

8. Income Taxes

On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes if necessary based on new information or events. The estimated annual effective tax rate is forecasted based on actual historical information and forward-looking estimates and is used to provide for income taxes in interim reporting periods. The Company also recognizes the tax impact of certain unusual or infrequently occurring items, such as the effects of changes in tax laws or rates and impacts from settlements with tax authorities, discretely in the quarter in which they occur.

For the three months ended June 30, 2019, the Company recorded income tax expense of $11.0 million at an effective income tax rate of 27.2%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due to the impact of state income taxes, nondeductible compensation, and income taxes on foreign earnings. The effective tax rate for the three-month period ended June 30, 2019 also includes tax benefits from foreign and general business tax credits. The increase in effective tax rate for the three months ended June 30, 2019 as compared to the same period last year was primarily attributed to the impacts of nondeductible compensation and noncontrolling interest, partially offset by benefits from income taxes on foreign earnings. For the three months ended June 30, 2018, the Company recorded an income tax expense of $7.7 million at an effective income tax rate of 26.6%.

For the six months ended June 30, 2019, the Company recorded income tax expense of $5.6 million at an effective income tax rate of 26.7%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due to the impact of state income taxes, nondeductible compensation, and income taxes on foreign earnings. The effective tax rate for the six-month period ended June 30, 2019 also includes tax benefits from foreign and general business tax credits. The decrease in effective tax rate for the six months ended June 30, 2019 as compared to the same period last year was primarily attributed to income taxes on foreign earnings and discrete activity in the prior period for a statutory merger that did not recur in the current period. For the six months ended June 30, 2018, the Company recorded an income tax expense of $7.4 million at an effective income tax rate of 27.7%.

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9. Accumulated Other Comprehensive Income (Loss)

The following tables summarize the after-tax components of accumulated other comprehensive income (loss) attributable to the Company for the three and six months ended June 30, 2019 and 2018:



		Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
		Three months ended June 30, 2019														Six months ended June 30, 2019
(in thousands)		Cash Flow Hedges			Foreign Currency Translation Adjustment			Investment in Convertible Preferred Securities		Defined Benefit Plan Items			Total			Cash Flow Hedges			Foreign Currency Translation Adjustment			Investment in Convertible Preferred Securities		Defined Benefit Plan Items			Total
Beginning Balance		$	(3,748	)	$	1,059		$	258	$	4,905		$	2,474		$	(126	)	$	(11,550	)	$	258	$	5,031		$	(6,387	)
	Other comprehensive loss before reclassifications	(5,952		)	(2,035		)	—		(557		)	$	(8,544	)	(9,710		)	(1,092		)	—		(512		)	(11,314		)
	Amounts reclassified from accumulated other comprehensive income (loss) (b)	—			—			—		(171		)	$	(171	)	136			11,666			—		(342		)	11,460
Net current-period other comprehensive income (loss)		(5,952		)	(2,035		)	—		(728		)	(8,715		)	(9,574		)	10,574			—		(854		)	146
Ending balance		$	(9,700	)	$	(976	)	$	258	$	4,177		$	(6,241	)	$	(9,700	)	$	(976	)	$	258	$	4,177		$	(6,241	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits

(b) Reflects foreign currency translation adjustments attributable to the consolidation of Thompsons Limited as summarized in Note 17.



		Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
		Three months ended June 30, 2018													Six months ended June 30, 2018
(in thousands)		Cash Flow Hedges		Foreign Currency Translation Adjustment			Investment in Convertible Preferred Securities		Defined Benefit Plan Items			Total			Cash Flow Hedges		Foreign Currency Translation Adjustment			Investment in Convertible Preferred Securities			Defined Benefit Plan Items			Total
Beginning Balance		$	—	$	(8,866	)	$	257	$	4,621		$	(3,988	)	$	—	$	(7,716	)	$	344		$	4,672		$	(2,700	)
	Other comprehensive income (loss) before reclassifications	51		(1,123		)	—		(119		)	(1,191		)	51		(2,273		)	(87		)	(2		)	(2,311		)
	Amounts reclassified from accumulated other comprehensive loss	—		—			—		(168		)	(168		)	—		—			—			(336		)	(336		)
Net current-period other comprehensive income (loss)		51		(1,123		)	—		(287		)	(1,359		)	51		(2,273		)	(87		)	(338		)	(2,647		)
Ending balance		$	51	$	(9,989	)	$	257	$	4,334		$	(5,347	)	$	51	$	(9,989	)	$	257		$	4,334		$	(5,347	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits

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	Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
(in thousands)	Three months ended June 30, 2019				Six months ended June 30, 2019
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	$	(228	)	(b)	$	(456	)	(b)
	(228		)	Total before tax	(456		)	Total before tax
	57			Income tax provision	114			Income tax provision
	$	(171	)	Net of tax	$	(342	)	Net of tax

Cash Flow Hedges
Interest payments	—			Interest expense	$	182		Interest expense
	—			Total before tax	182			Total before tax
	—			Income tax provision	(46		)	Income tax provision
	$	—		Net of tax	$	136		Net of tax

Foreign Currency Translation Adjustment
Realized loss on pre-existing investment	—			Other income, net	$	11,666		Other income, net
	—			Total before tax	$	11,666		Total before tax
	—			Income tax provision	$	—		Income tax provision
	$	—		Net of tax	$	11,666		Net of tax

Total reclassifications for the period	$	(171	)	Net of tax	$	11,460		Net of tax



	Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
(in thousands)	Three months ended June 30, 2018				Six months ended June 30, 2018
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	$	(228	)	(b)	$	(456	)	(b)
	(228		)	Total before tax	(456		)	Total before tax
	60			Income tax provision	120			Income tax provision
	$	(168	)	Net of tax	$	(336	)	Net of tax

Total reclassifications for the period	$	(168	)	Net of tax	$	(336	)	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).

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10. Earnings Per Share

The Company’s non-vested 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. 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.



(in thousands, except per common share data)	Three months ended June 30,				Six months ended June 30,
(in thousands, except per common share data)	2019		2018		2019		2018
Net income attributable to The Andersons, Inc.	$	29,888	$	21,529	$	15,895	$	19,829
Less: Distributed and undistributed earnings allocated to nonvested restricted stock	—		—		—		—
Earnings available to common shareholders	$	29,888	$	21,529	$	15,895	$	19,829
Earnings per share – basic:
Weighted average shares outstanding – basic	32,521		28,261		32,511		28,249
Earnings per common share – basic	$	0.92	$	0.76	$	0.49	$	0.70
Earnings per share – diluted:
Weighted average shares outstanding – basic	32,521		28,261		32,511		28,249
Effect of dilutive awards	212		128		560		187
Weighted average shares outstanding – diluted	32,733		28,389		33,071		28,436
Earnings per common share – diluted	$	0.91	$	0.76	$	0.48	$	0.70

All outstanding share awards were 33 thousand and 61 thousand antidilutive for the three and six months ended June 30, 2019, respectively. There were 28 thousand and 25 thousand antidilutive stock-based awards outstanding for the three and six months ended June 30, 2018, respectively.

11. Fair Value Measurements

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2019, December 31, 2018 and June 30, 2018:



(in thousands)	June 30, 2019
Assets (liabilities)	Level 1			Level 2			Level 3		Total
Commodity derivatives, net (a)	$	103,350		$	62,473		$	—	$	165,823
Provisionally priced contracts (b)	(1,064		)	(38,215		)	—		(39,279		)
Convertible preferred securities (c)	—			—			8,404		8,404
Other assets and liabilities (d)	5,284			(10,750		)	—		(5,466		)
Total	$	107,570		$	13,508		$	8,404	$	129,482



(in thousands)	December 31, 2018
Assets (liabilities)	Level 1			Level 2			Level 3		Total
Commodity derivatives, net (a)	$	37,229		$	(18,864	)	$	—	$	18,365
Provisionally priced contracts (b)	(76,175		)	(58,566		)	—		(134,741		)
Convertible preferred securities (c)	—			—			7,154		7,154
Other assets and liabilities (d)	5,186			(353		)	—		4,833
Total	$	(33,760	)	$	(77,783	)	$	7,154	$	(104,389	)

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(in thousands)	June 30, 2018
Assets (liabilities)	Level 1			Level 2			Level 3		Total
Commodity derivatives, net (a)	$	15,356		$	(48,451	)	$	—	$	(33,095	)
Provisionally priced contracts (b)	(37,787		)	(24,511		)	—		(62,298		)
Convertible preferred securities (c)	—			—			7,488		7,488
Other assets and liabilities (d)	4,136			(37		)	—		4,099
Total	$	(18,295	)	$	(72,999	)	$	7,488	$	(83,806	)


(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 assets held in rabbi trusts to fund deferred compensation plans, ethanol risk management contracts, and foreign exchange derivative contracts (Level 1), and interest rate derivatives (Level 2).

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

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

The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices quoted on various exchanges for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because “basis” for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the agribusiness industry, we have concluded that “basis” is typically a Level 2 fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives, depending on the specific commodity. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a significant input to fair value for these commodity contracts.

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 future changes in the grain price, quoted exchange prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. For all other unpriced contracts which include variable futures and basis components, the amounts recorded for delayed price contracts are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy.

The 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 exchange prices and as such, the balance is deemed to be Level 1 in the fair value hierarchy.

The convertible preferred securities are interests in several early-stage enterprises that may be in various forms, such as convertible debt or preferred equity securities.

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A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:



	Convertible Preferred Securities
(in thousands)	2019		2018
Assets (liabilities) at January 1,	$	7,154	$	7,388
Additional Investments	250		—
Assets (liabilities) at March 31,	$	7,404	$	7,388
Additional investments	1,000		100
Asset (liabilities) at June 30,	$	8,404	$	7,488

The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of June 30, 2019, December 31, 2018 and June 30, 2018:



	Quantitative Information about Level 3 Fair Value Measurements
(in thousands)	Fair Value as of June 30, 2019		Valuation Method	Unobservable Input	Weighted Average
Convertible preferred securities (a)	$	8,404	Implied based on market prices	N/A	N/A
Real Property (b)	2,719		Market Approach	N/A	N/A



(in thousands)	Fair Value as of December 31, 2018		Valuation Method	Unobservable Input	Weighted Average
Convertible preferred securities (a)	$	7,154	Implied based on market prices	N/A	N/A



(in thousands)	Fair Value as of June 30, 2018		Valuation Method	Unobservable Input	Weighted Average
Convertible preferred securities (a)	$	7,488	Implied based on market prices	N/A	N/A
Real property (b)	1,300		Sale agreement	N/A	N/A
Rail car assets (c)	4,063		National scrap index less cost to sell	N/A	N/A

(a) The Company considers observable price changes and other additional market data available in order to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.

(b) The Company recognized impairment charges on certain assets and measured the fair value using Level 3 inputs on a nonrecurring basis. The fair value of the assets was determined using prior transactions in the local market and a pending sale of grain assets held by the Company.

(c)The Company recognized impairment charges on rail assets during 2018 and measured fair value using Level 3 inputs on a nonrecurring basis. The fair value of the assets was determined based on a national scrap index less cost to sell.

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)	June 30, 2019		December 31, 2018		June 30, 2018
Fair value of long-term debt, including current maturities	$	1,078,185	$	517,998	$	444,821
Fair value in excess of carrying value (a)	4,495		5,813		(8,063		)

(a) Carrying value used for this purpose excludes unamortized debt issuance costs.

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

12. Related Party Transactions

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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.

The following table presents the Company’s investment balance in each of its equity method investees by entity:



(in thousands)	June 30, 2019		December 31, 2018		June 30, 2018
The Andersons Albion Ethanol LLC	$	50,760	$	50,382	$	47,474
The Andersons Clymers Ethanol LLC	25,260		24,242		21,214
The Andersons Marathon Ethanol LLC	16,294		14,841		14,344
Lansing Trade Group, LLC (a)	—		101,715		97,476
Thompsons Limited (a)	—		48,987		49,251
Providence Grain Group Inc.	17,161		—		—
Other	11,454		2,159		2,400
Total	$	120,929	$	242,326	$	232,159

(a) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the Company purchased the remaining equity of LTG. The transaction results in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company had equally owned.

The following table summarizes income (loss) earned from the Company’s equity method investments by entity:



		Three months ended June 30,						Six months ended June 30,
(in thousands)	% Ownership at June 30, 2019	2019			2018			2019			2018
The Andersons Albion Ethanol LLC	55%	$	120		$	1,329		$	379		$	2,450
The Andersons Clymers Ethanol LLC	39%	694			1,236			1,276			1,745
The Andersons Marathon Ethanol LLC	33%	644			1,728			1,453			1,684
Lansing Trade Group, LLC (a)	100% (a)	—			3,591			—			6,175
Thompsons Limited (a)	100% (a)	—			1,980			—			1,311
Providence Grain Group Inc.	39%	(1,719		)	—			(1,844		)	—
Other	5% - 51%	104			(61		)	98			11
Total		$	(157	)	$	9,803		$	1,362		$	13,376

(a) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the company purchased the remaining equity of LTG. The transaction results in the consolidation of Thompsons Limited and related entities, which LTG and the Company had equally owned.

The Company received $0.3 million from unconsolidated affiliates for the six months ended June 30, 2019 and received $2.1 million for the six months ended June 30, 2018.

In the second quarter of 2019, the Company did not have significant equity investees. In the second quarter of 2018, Lansing Trade Group qualified as significant equity investee of the Company under the income test. In January of 2019, the Company acquired the remaining equity of LTG and is now reflected in the consolidated results of the Company.

Related Party Transactions

In the ordinary course of business and on an arms-length basis, the Company will enter into related party transactions with each of the investments described above, along with other related parties.

On March 2, 2018, the Company invested in ELEMENT, LLC. The Company owns 51% of ELEMENT, LLC and ICM, Inc. owns the remaining 49% interest. ELEMENT, LLC is constructing a 70 million-gallon-per-year bio-refinery. As part of the Company’s investment into ELEMENT, LLC, the Company and ICM, Inc. entered into a number of agreements with the entity. Most notably, ICM, Inc. will operate the facility under a management contract and manage the initial construction of the facility, while the Company will provide corn origination, ethanol marketing, and risk management services. The results of operations for ELEMENT, LLC have been included in the Company's consolidated results of operations beginning on March 2, 2018 and are a component of the Ethanol segment. The plant is expected to be operational in the third quarter of 2019.

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The following table sets forth the related party transactions entered into for the time periods presented:



	Three months ended June 30,				Six months ended June 30,
(in thousands)	2019		2018		2019		2018
Sales revenues	$	57,854	$	107,686	$	119,022	$	196,580
Service fee revenues (a)	4,052		5,191		8,163		10,308
Purchases of product and capital assets	176,442		197,444		345,671		378,968
Lease income (b)	1,645		1,624		3,309		3,206
Labor and benefits reimbursement (c)	3,602		3,601		7,460		7,168


(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.


(c)	The Company provides all operational labor to the unconsolidated ethanol LLCs.



(in thousands)	June 30, 2019		December 31, 2018		June 30, 2018
Accounts receivable (d)	$	19,515	$	17,829	$	27,030
Accounts payable (e)	24,700		28,432		39,620


(d)	Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees.


(e)	Accounts payable represents amounts due to related parties for purchases of ethanol and other various items.

For the three months ended June 30, 2019 and 2018, revenues recognized for the sale of ethanol and co-products that the Company purchased from the unconsolidated ethanol LLCs were $154.2 million and $172.3 million, respectively. For the six months ended June 30, 2019 and 2018, revenues recognized for the sale of ethanol and co-products that the Company purchased from the unconsolidated ethanol LLCs were $298.2 million and $318.5 million, respectively.

The Company may enter into derivative contracts with certain of its related parties, including the unconsolidated ethanol LLCs, for the purchase and sale of grain or ethanol, for 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 June 30, 2019, December 31, 2018 and June 30, 2018 was $0.2 million, $1.9 million and $8.1 million, respectively. The fair value of derivative contract liabilities with related parties as of June 30, 2019, December 31, 2018 and June 30, 2018 was $2.1 million, $6.3 million and $3.9 million, respectively.

13. Segment Information

The Company’s operations include four reportable business segments that are distinguished primarily on the basis of products and services offered. The Trade business includes grain merchandising, the operation of terminal grain elevator facilities and, historically, the investments in LTG and Thompsons Limited. In January 2019, the Company acquired the remaining 67.5% of LTG equity that it did not already own. The transaction also resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company jointly owned. The Company is continuing to evaluate its segment reporting structure as a result of the acquisition. The presentation includes a majority of the acquired business within the legacy Grain Group which has been renamed, Trade Group. The acquired ethanol trading business of LTG is included within the Ethanol Group. This presentation is still preliminary as the reporting structure may further evolve this year. The Company also moved certain commission income and an elevator lease from the legacy Grain Group to the Ethanol Group to better align business segments. Prior year results have been recast to reflect this change. The Ethanol business purchases and sells ethanol, and provides risk management, origination and management services to ethanol production facilities. These facilities are organized as limited liability companies, two are consolidated and three are investments accounted for under the equity method. The Company performs a combination of these services under various contracts for these investments. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers, along with turf care and corncob-based products. Rail operations include the leasing, marketing and fleet management of railcars and other assets, railcar repair and metal fabrication. The Other category includes other corporate level costs not attributable 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

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normal, unaffiliated customer sales. The Company does not have any customers who represent 10 percent or more of total revenue.



	Three months ended June 30,				Six months ended June 30,
(in thousands)	2019		2018		2019		2018
Revenues from external customers
Trade	$	1,766,305	$	365,920	$	3,364,326	$	642,772
Ethanol	245,143		200,938		453,974		373,776
Plant Nutrient	270,577		303,106		399,102		438,723
Rail	43,016		41,438		84,431		91,870
Total	$	2,325,041	$	911,402	$	4,301,833	$	1,547,141



	Three months ended June 30,				Six months ended June 30,
(in thousands)	2019		2018		2019		2018
Inter-segment sales
Trade	$	631	$	462	$	812	$	993
Plant Nutrient	1,274		—		1,294		—
Rail	771		338		2,046		671
Total	$	2,676	$	800	$	4,152	$	1,664



	Three months ended June 30,						Six months ended June 30,
(in thousands)	2019			2018			2019			2018
Income (loss) before income taxes, net of noncontrolling interest
Trade	$	23,731		$	9,877		$	6,268		$	9,847
Ethanol	2,649			6,125			5,221			7,964
Plant Nutrient	15,903			15,124			11,974			16,215
Rail	3,180			944			7,492			4,913
Other	(4,578		)	(2,799		)	(9,505		)	(11,678		)
Income (loss) before income taxes, net of noncontrolling interest	40,885			29,271			21,450			27,261
Noncontrolling interests	(477		)	(116		)	(632		)	(398		)
Income (loss) before income taxes	$	40,408		$	29,155		$	20,818		$	26,863



(in thousands)	June 30, 2019		December 31, 2018		June 30, 2018
Identifiable assets
Trade	$	2,057,305	$	978,974	$	820,016
Ethanol	361,522		295,971		248,560
Plant Nutrient	381,924		403,780		356,166
Rail	657,617		590,407		535,087
Other	113,491		122,871		157,959
Total	$	3,571,859	$	2,392,003	$	2,117,788

14. Leases

The Company leases certain grain handling and storage facilities, ethanol storage terminals. warehouse space, railcars, locomotives, barges, office space, machinery and equipment, vehicles and information technology equipment under operating leases. Lease expense for these leases is recognized within the Consolidated Statements of Operations on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.

The following table summarizes the amounts recognized in the Company's Condensed Consolidated Balance Sheet related to leases:

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(in thousands)	Condensed Consolidated Balance Sheet Classification	June 30, 2019
Assets
Operating lease assets	Right of use assets, net	$	74,073
Finance lease assets	Property, plant and equipment, net	24,099
Finance lease assets	Rail Group assets leased to others, net	2,047
Total leased assets		$	100,219

Liabilities
Current operating leases	Accrued expenses and other current liabilities	25,672
Non-current operating leases	Long-term lease liabilities	48,401
Total operating lease liabilities		$	74,073

Current finance leases	Current maturities of long-term debt	16,990
Non-current finance leases	Long-term debt	21,940
Total finance lease liabilities		$	38,930
Total lease liabilities		$	113,003

The components of lease cost recognized within the Company's Condensed Consolidated Statement of Operations were as follows:



(in thousands)	Condensed Consolidated Statement of Operations Classification	June 30, 2019
Lease cost:
Operating lease cost	Cost of sales and merchandising revenues	$	13,120
Operating lease cost	Operating, administrative and general expenses	6,834
Finance lease cost
Amortization of right-of-use assets	Operating, administrative and general expenses	1,912
Interest expense on lease liabilities	Interest expense	543
Other lease cost (1)	Operating, administrative and general expenses	199
Other lease cost (1)	Interest expense	24
Total lease cost		$	22,632


(1)	Other lease cost includes short-term lease costs and variable lease costs

The Company often has the option to renew lease terms for buildings and other assets. The exercise of a lease renewal option is generally at the sole discretion of the Company. In addition, certain lease agreements may be terminated prior to their original expiration date at the discretion of the Company. Each renewal and termination option is evaluated at the lease commencement date to determine if the Company is reasonably certain to exercise the option on the basis of economic factors. The table below summarizes the weighted average remaining lease terms as of June 30, 2019.



Weighted Average Remaining Lease Term
Operating leases	4.3 years
Finance leases	7.1 years

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The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for each lease is determined based on its term and the currency in which lease payments are made, adjusted for the impacts of collateral. The table below summarizes the weighted average discount rate used to measure the Company's lease liabilities as of June 30, 2019.



Weighted Average Discount Rate
Operating leases	4.16	%
Finance leases	3.74	%

Supplemental Cash Flow Information Related to Leases



(in thousands)	June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	21,345
Operating cash flows from finance leases	$	304
Financing cash flows from finance leases	$	775
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	3,992
Finance leases	$	15,920

Maturity Analysis of Leases Liabilities



	As of June 30, 2019
(in thousands)	Operating Leases		Finance Leases		Total
2019 (excluding the six months ended June 30, 2019)	$	15,849	$	3,672	$	19,521
2020	22,069		15,288		37,357
2021	15,898		2,162		18,060
2022	10,550		2,169		12,719
2023	6,193		2,170		8,363
Thereafter	10,613		18,331		28,944
Total lease payments	$	81,172	$	43,792	$	124,964
Less interest	7,099		4,862		11,961
Total	$	74,073	$	38,930	$	113,003

15. 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.

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The Company recorded a $5.0 million reserve relating to an outstanding non-regulatory litigation claim, based upon preliminary settlement negotiations in the first quarter of 2019. The claim is in response to penalties and fines paid to regulatory entities by LTG in 2018 for the settlement of matters which focused on certain trading activity.

The estimated losses for all other outstanding claims that are considered reasonably possible are not material.

Commitments

The Company continues its construction of a new bio-refinery facility, which is expected to be completed in 2019. Portions of the project are covered by design and build contracts, with approximately $13 million of the remaining obligation not yet incurred, of which $0.9 million has been prepaid, as of June 30, 2019.

16. Supplemental Cash Flow Information

Certain supplemental cash flow information, including noncash investing and financing activities for the six months ended June 30, 2019 and 2018 are as follows:



	Six months ended June 30,
(in thousands)	2019			2018
Supplemental disclosure of cash flow information
Interest paid	$	30,287		$	16,982
Noncash investing and financing activity
Equity issued in conjunction with acquisition	127,841			—
Removal of pre-existing equity method investment	(159,459		)	—
Purchase price holdback/ other accrued liabilities	31,885			—
Dividends declared not yet paid	5,530			4,663
Debt resulting from accounting standard adoption	—			36,953
Railcar assets and liabilities resulting from accounting standard adoption	—			25,643
Capital projects incurred but not yet paid	15,317			10,744

17. Business Acquisition

Effective January 1, 2019, the Company completed its acquisition of the remaining 67.5% equity of LTG. The transaction resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities as they were jointly owned by the Company and LTG in equal portions.

Total consideration paid by the Company to complete the acquisition of LTG was $328.9 million. The Company paid $169.2 million in cash, which includes preliminary working capital adjustments of $31.9 million, and issued 4.4 million unregistered shares valued at $127.8 million based upon the stock price of the Company.

The purchase price allocation is preliminary, pending completion of the full valuation report and a final working capital adjustment to be agreed upon between the Company and the sellers. A summarized preliminary purchase price allocation is as follows:



(in thousands)
Cash consideration paid	$	169,218
Equity consideration	127,841
Purchase price holdback/ other accrued liabilities	31,885
Total purchase price consideration	$	328,944

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The preliminary purchase price allocation at January 1, 2019, is as follows:



(in thousands)
Cash and cash equivalents	$	21,525
Accounts receivable	320,467
Inventories	456,963
Commodity derivative assets - current	82,595
Other current assets	27,474
Commodity derivative assets - noncurrent	13,576
Goodwill	129,848
Other intangible assets	106,600
Right of use asset	37,894
Equity method investments	28,728
Other assets, net	5,582
Property, plant and equipment, net	171,820
	$	1,403,072

Short-term debt	218,901
Trade and other payables	303,321
Commodity derivative liabilities - current	29,024
Customer prepayments and deferred revenue	99,530
Accrued expense and other current liabilities	64,512
Other long-term liabilities, including commodity derivative liabilities - noncurrent	3,175
Long-term lease liabilities	21,193
Long-term debt, including current maturities	161,688
Deferred income taxes	14,403
	$	915,747
Fair value of acquired assets and assumed liabilities	$	487,325

Removal of preexisting ownership interest, including associated cumulative translation adjustment	(159,459		)
Pretax loss on derecognition of preexisting ownership interest	1,078
Total purchase price consideration	$	328,944

The goodwill recognized as a result of the LTG acquisition is $129.9 million and is allocated to the Trade Group segment. A portion of the goodwill is expected to be deductible for tax purposes. The goodwill recognized is primarily attributable to the addition of an assembled workforce and complementary assets with greater scale that significantly expands the Company's reach in the agricultural marketplace. Due to refinements in the valuation and finalization of certain replacement equity award during the second quarter, goodwill increased approximately $7.5 million and other intangible assets decreased $9.6 million as well as various working capital adjustments. The Company also finalized the determination of the preacquisition fair value of its preexisitng ownership interests, which resulted in a revision of the previously recorded pretax loss by $2.4 million.

Details of the intangible assets acquired are as follows:



(in thousands)			Estimated useful life
Customer relationships	$	86,300	10 years
Noncompete agreements	20,300		3 years
	$	106,600	8 years	*

*weighted average number of years

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Pro Forma Financial Information

The summary pro forma financial information for the periods presented below gives effect to the LTG acquisition as if it had occurred at January 1, 2018.



	Three months ended June 30,				Six months ended June 30,
(in thousands)	2019		2018		2019		2018
Net sales	$	2,359,077	$	2,333,598	$	4,335,869	$	4,261,910
Net income	29,985		42,506		19,232		32,110

Pro forma net loss was also adjusted to account for the tax effects of the pro forma adjustments noted above using a statutory tax rate of 25%. The amount of LTG’s and Thompsons’ revenue and earnings included in the Company’s consolidated statement of operations for the period ended June 30, 2019 are not practicable to determine given the level of integration of LTG and Thompsons into the Company’s operations effective January 1, 2019.

18. Goodwill

The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2019 are as follows:



(in thousands)	Trade		Plant Nutrient		Rail		Total
Balance as of January 1, 2019	$	1,171	$	686	$	4,167	$	6,024
Acquisitions	129,848		—		—		129,848
Balance as of June 30, 2019	$	131,019	$	686	$	4,167	$	135,872

Acquisitions represent the LTG acquisition's preliminary goodwill allocation.

19. Exit Costs and Assets Held for Sale

The Company classified $9.8 million of Property, plant and equipment as Assets held for sale on the Condensed Consolidated Balance Sheet at June 30, 2018. This includes $4.2 million of Retail store assets, $4.1 million of Rail Group assets, and $1.3 million of former Grain Group assets relating to Como, Tennessee operations, and $0.2 million relating to administrative offices at an outlying location in the Plant Nutrient Group.

20. Subsequent Events

Subsequent to the end of the second quarter, the Company reached an agreement to sell the agronomy assets of Thompsons Limited, a wholly owned subsidiary in Ontario, Canada, to Sylvite Holdings Inc. of Burlington, Ontario. The sale is expected to close in September 2019. The Andersons will continue to own and operate Thompsons’ grain storage and food processing facilities in Ontario.

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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. The reader is 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, 2018 (“2018 Form 10-K”). In some cases, the reader can identify forward-looking statements by terminology such as may, anticipates, believes, estimates, predicts, or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although 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 2018 Form 10-K, have not materially changed through the second quarter of 2019, other than as a result of adopting the new lease accounting standard. See additional information regarding these policies in the Notes to the Condensed Consolidated Financial statements herein in Notes 1 and 14.

Executive Overview

Our operations are organized, managed and classified into four reportable business segments: Trade, Ethanol, Plant Nutrient, and Rail. Each of these segments is generally based on the nature of products and services offered. In January, the Company completed the acquisition of 67.5% of LTG equity that it did not already own. The transaction also resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company jointly owned. The Company is continuing to evaluate its segment reporting structure as a result of the acquisition. The presentation here includes a majority of the acquired business within the legacy Grain Group which has been renamed, Trade Group. The acquired ethanol trading business is included within the Ethanol Group. As a result of the LTG acquisition, the Company also moved certain commission income and an elevator lease from the legacy Grain Group to the Ethanol Group to better align business segments. Prior year results have been recast to reflect this change.

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 between periods may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes in gross profit.

Further, we have considered the potential impact that the Company’s total shareholders’ equity exceeded the Company’s market capitalization value at various points during the quarter for impairment indicators. While we ultimately concluded that the book value in excess of market capitalization is a short-term anomaly and that no impairment triggering event has occurred, the assessment performed for goodwill may be influenced by these market conditions and affect the calculated fair value of the reporting unit at the annual October 1 assessment date. A goodwill impairment charge might result if recent weaknesses in our business units prove to be long-term in nature and affect our forecast for future years. Total goodwill across the Company is $135.9 million.

Trade Group

The Trade Group’s results in the second quarter reflect improved market conditions from strong corn and wheat basis appreciation and capitalizing on better merchandising opportunities due to increased market volatility.

Agricultural inventories on hand at June 30, 2019 were 96.1 million bushels, of which 1.3 million bushels were stored for others. These amounts compare to 80.9 million bushels on hand at June 30, 2018, of which 0.1 million bushels were stored for

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others. Total Trade storage capacity, including temporary pile storage, was approximately 216 million bushels at June 30, 2019 compared to 145 million bushels at June 30, 2018. This increase in capacity was a result of the LTG acquisition.

The Trade Group will seek to capitalize on continued market volatility, but expects headwinds in the second half of the year from the unpredictability of the crop production in the Eastern Corn Belt due to the extreme weather during the first half of the year.

Ethanol Group

The Ethanol Group's second quarter results remained profitable despite an extremely weak margin environment. The construction of the Ethanol Group's new bio-refinery facility continues and the project is on target to be operational in the third quarter of 2019. The Ethanol Group expects the margin headwinds to continue into the second half of the year due to rising corn basis levels.

Ethanol and related co-products volumes for three and six months ended June 30, 2019 and 2018 were as follows:



(in thousands)	Three months ended June 30,		Six months ended June 30,
	2019	2018	2019	2018
Ethanol (gallons shipped)	130,297	117,061	261,325	220,136
E-85 (gallons shipped)	13,959	16,577	22,892	31,479
Corn Oil (pounds shipped)	4,821	5,567	9,754	10,374
DDG (tons shipped) *	36	42	73	81

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

The above table shows only shipped volumes reflected in the Company's revenues. Total ethanol, corn oil and DDG production by the unconsolidated LLCs is higher. However, the portion of that volume that is sold directly to its customers is excluded here. The increase in ethanol gallons shipped is a result of the LTG acquisition.

Plant Nutrient Group

The Plant Nutrient Group's second quarter results reflect improved primary and specialty nutrient margins and depressed volumes due to unprecedented wet weather in much of its core footprint. The Group is optimistic margins will remain strong for the second half of the year despite the lawn business expecting to continue to face headwinds.

Storage capacity at our wholesale nutrient and farm center facilities, including leased storage, was approximately 487 thousand tons for dry nutrients and approximately 515 thousand tons for liquid nutrients at June 30, 2019, compared to approximately 484 thousand tons for dry nutrients and approximately 515 thousand tons for liquid nutrients at June 30, 2018.

Tons of product sold for three and six months ended June 30, 2019 and 2018 were as follows:



(in thousands)	Three months ended June 30,		Six months ended June 30,
	2019	2018	2019	2018
Primary nutrients	589	657	767	859
Specialty nutrients	207	247	372	433
Other	13	13	29	29
Total tons	809	917	1,168	1,321

In the table above, primary nutrients is comprised of nitrogen, phosphorus, and potassium from our wholesale and farm center businesses. Specialty nutrients encompasses low-salt liquid starter fertilizers, micronutrients for wholesale and farm center businesses, as well as the lawn business. Other tons include those from the cob business.

Rail Group

The Rail Group results improved due to stronger utilization rates from more cars on lease and an impairment charge in the prior year. These increases were partially offset by a decrease in income from car sales and other services. Average utilization rates increased from 89.5 percent in the second quarter of 2018 to 94.6 percent in the second quarter of 2019. A portion of this

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increase, however, is attributable to the railcar scrap program which occurred in the second quarter of 2018. Additionally, the Company focused on putting idle cars in service and growing the fleet with strategic purchases. Rail Group assets under management (owned, leased or managed for financial institutions in non-recourse arrangements) at June 30, 2019 were 23,966 compared to 23,059 at June 30, 2018.

The leasing business continues to perform well with more cars on lease and higher average lease rates year over year. Lease rates and utilization rates have likely hit their peak but should remain steady.

Other

Our “Other” activities include corporate income and expense and cost for functions that provide support and services to the operating segments. The results include expenses and benefits not allocated to the operating segments, including a portion of our ERP project, and other elimination and consolidation adjustments.

Operating Results

The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Operations and includes a separate discussion by segment. Additional segment information is included herein in Note 13, Segment Information.

Comparison of the three months ended June 30, 2019 with the three months ended June 30, 2018:



	Three months ended June 30, 2019
(in thousands)	Trade			Ethanol			Plant Nutrient		Rail		Other			Total
Sales and merchandising revenues	$	1,766,305		$	245,143		$	270,577	$	43,016	$	—		$	2,325,041
Cost of sales and merchandising revenues	1,663,459			240,831			231,779		28,244		—			2,164,313
Gross profit	102,846			4,312			38,798		14,772		—			160,728
Operating, administrative and general expenses	67,995			4,697			21,079		7,740		5,407			106,918
Asset impairment	3,081			—			—		—		—			3,081
Interest expense (income)	10,243			(906		)	2,386		4,181		(177		)	15,727
Equity in earnings (losses) of affiliates, net	(1,614		)	1,457			—		—		—			(157		)
Other income (expense), net	3,818			194			570		329		652			5,563
Income (loss) before income taxes	23,731			2,172			15,903		3,180		(4,578		)	40,408
Income (loss) attributable to the noncontrolling interests	—			(477		)	—		—		—			(477		)
Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc.	$	23,731		$	2,649		$	15,903	$	3,180	$	(4,578	)	$	40,885

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	Three months ended June 30, 2018
(in thousands)	Trade		Ethanol			Plant Nutrient		Rail		Other			Total
Sales and merchandising revenues	$	365,100	$	201,758		$	303,106	$	41,438	$	—		$	911,402
Cost of sales and merchandising revenues	331,213		195,896			265,939		27,880		—			820,928
Gross profit	33,887		5,862			37,167		13,558		—			90,474
Operating, administrative and general expenses	26,444		2,770			21,024		5,863		3,752			59,853
Asset impairment	1,564		—			—		4,708		—			6,272
Interest expense (income)	3,930		(270		)	1,641		2,718		(194		)	7,825
Equity in earnings (losses) of affiliates, net	5,510		4,293			—		—		—			9,803
Other income (expense), net	1,248		(476		)	622		675		759			2,828
Income (loss) before income taxes	8,707		7,179			15,124		944		(2,799		)	29,155
Income (loss) attributable to the noncontrolling interests	—		(116		)	—		—		—			(116		)
Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc.	$	8,707	$	7,295		$	15,124	$	944	$	(2,799	)	$	29,271

Trade Group

Operating results for the Trade Group increased by $15.0 million compared to the results of the same period last year. Sales and merchandising revenues increased by $1,401.2 million and cost of sales and merchandising revenues increased $1,332.2 million for favorable net gross profit impact of $69.0 million. Substantially all of the gross profit increase was a direct result of acquiring LTG and Thompsons, however, the Company also realized significant basis appreciation on its corn and wheat positions.

Operating, administrative and general expenses increased by $41.6 million. The acquisition of the remaining equity in LTG and Thompsons accounted for $39.4 million of this increase. Included in the increased expenses are several acquisition related items, such as, $1.3 million of stock-based compensation expense, $0.4 million of incremental depreciation and amortization expenses and $0.4 million of other transaction-related costs.

Interest expense increased $6.3 million due to the increased debt levels resulting from the acquisition and rising interest rates.

Equity in earnings of affiliates decreased by $7.1 million as LTG and Thompsons are now consolidated entities.

Other income, net includes a $2.4 million adjustment to the previously recorded $3.5 million loss on pre-existing investments in LTG and Thompsons, pursuant to the accounting rules that govern step acquisitions, as the Company finalized its valuation of the pre-acquisition fair value of these investments during the quarter as a part of the preliminary purchase price accounting.

Ethanol Group

Operating results for the Ethanol Group declined $4.6 million from the same period last year. Sales and merchandising revenues increased $43.4 million and cost of sales and merchandising revenues increased $44.9 million compared to 2018 results were primarily attributable to the LTG acquisition. Gross profit decreased by $1.6 million compared to 2018 results due to a compressed industry margin environment.

Operating, administrative and general expenses increased $1.9 million primarily due to an increase in labor and benefits, most of which was from the addition of the acquired ethanol trading team.

Interest expense decreased $0.6 million due to the capitalization of interest related to the construction of the ELEMENT plant.

Plant Nutrient Group

Operating results for the Plant Nutrient Group increased by $0.8 million compared to the same period in the prior year. Sales and merchandising revenues decreased $32.5 million. This was driven by a significant decrease in primary and specialty ton

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volumes. These decreases are due to unfavorable weather conditions when compared to the prior year. Cost of sales and merchandising revenues decreased by $34.2 million due to the decrease in sales volumes, improved cost containment, operational efficiency and product mix. While volumes decreased, margins improved from the prior year and led to an increased gross profit of $1.6 million.

Interest expense increased $0.7 million from carrying higher levels of inventories due to the wet weather that delayed and reduced planting.

Rail Group

Operating results increased $2.2 million from the same period last year while sales and merchandising revenues increased $1.6 million. This increase was driven by a $2.1 million increase in leasing revenues from more cars on lease. This increase was partially offset from decreased car sale revenues of $0.5 million as the Company sold more cars in the second quarter of 2018. Cost of sales and merchandising increased $0.4 million compared to the prior year due to higher depreciation expense. As a result, gross profit increased $1.2 million compared to last year.

Operating, administrative and general expenses increased $1.9 million driven by increased costs related to opening and closing repair shops and increased labor and workers’ compensation expenses. The prior period results also include an impairment charge on idle fleet assets

Interest expense increased $1.5 million due to higher debt balances and rising interest rates.

Other

Operating, administrative and general expenses increased $1.7 million due to favorable benefit costs in the prior year.

Income Taxes

For the three months ended June 30, 2019, the Company recorded income tax expense of $11.0 million at an effective rate of 27.2%. In 2018, the Company recorded an income tax expense of $7.7 million at an effective tax rate of 26.6%. The increase in effective tax rate for the three months ended June 30, 2019 as compared to the same period last year was primarily attributed to the impacts of nondeductible compensation and noncontrolling interest, partially offset by benefits from income taxes on foreign earnings.

Comparison of the six months ended June 30, 2019 with the six months ended June 30, 2018:



	Six months ended June 30, 2019
(in thousands)	Trade			Ethanol			Plant Nutrient		Rail		Other			Total
Sales and merchandising revenues	$	3,364,326		$	453,974		$	399,102	$	84,431	$	—		$	4,301,833
Cost of sales and merchandising revenues	3,192,491			445,854			339,370		53,726		—			4,031,441
Gross profit	171,835			8,120			59,732		30,705		—			270,392
Operating, administrative and general expenses	140,411			8,646			44,248		15,891		11,071			220,267
Asset impairment	3,081			—			—		—		—			3,081
Interest expense (income)	21,158			(1,730		)	4,647		7,860		(298		)	31,637
Equity in earnings (losses) of affiliates, net	(1,745		)	3,107			—		—		—			1,362
Other income (expense), net	828			278			1,137		538		1,268			4,049
Income (loss) before income taxes	6,268			4,589			11,974		7,492		(9,505		)	20,818
Income (loss) attributable to the noncontrolling interests	—			(632		)	—		—		—			(632		)
Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc.	$	6,268		$	5,221		$	11,974	$	7,492	$	(9,505	)	$	21,450

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	Six months ended June 30, 2018
(in thousands)	Trade		Ethanol			Plant Nutrient		Rail		Other			Total
Sales and merchandising revenues	$	641,126	$	375,422		$	438,723	$	91,870	$	—		$	1,547,141
Cost of sales and merchandising revenues	582,015		365,868			379,319		65,760		—			1,392,962
Gross profit	59,111		9,554			59,404		26,110		—			154,179
Operating, administrative and general expenses	52,265		5,932			41,381		12,094		12,438			124,110
Asset impairment	1,564		—			—		4,708		—			6,272
Interest expense (income)	6,892		(314		)	3,082		5,086		78			14,824
Equity in earnings (losses) of affiliates, net	7,497		5,879			—		—		—			13,376
Other income (expense), net	1,573		138			1,274		691		838			4,514
Income (loss) before income taxes	7,460		9,953			16,215		4,913		(11,678		)	26,863
Income (loss) attributable to the noncontrolling interests	—		(398		)	—		—		—			(398		)
Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc.	$	7,460	$	10,351		$	16,215	$	4,913	$	(11,678	)	$	27,261

Trade Group

Operating results for the Trade Group decreased by $1.2 million compared to the results of the same period last year. Sales and merchandising revenues increased $2,723.2 million and cost of sales and merchandising revenues increased $2,610.5 million for an increase in net gross profit of $112.7 million. The gross profit increase was a direct result of acquiring LTG and Thompsons.

Operating, administrative and general expenses increased $88.1 million. The acquisition of the remaining equity in LTG and Thompsons accounted for $80.4 million of this increase. Included in the increased expenses are several purchase accounting related items, such as, $4.8 million of stock-based compensation expense, $4.8 million of incremental depreciation and amortization expense and $1.2 million of other transaction-related costs.

Interest expense increased $14.3 million primarily due to the acquisition and rising interest rates. The Company also wrote off $0.6 million in deferred financing fees as part of its new credit facility.

Equity in earnings of affiliates decreased by $9.2 million because LTG and Thompsons are now consolidated entities.

Other income, net includes a $1.1 million loss on the pre-acquisition fair value of our LTG and Thompsons investments compared to our previous carrying values. The loss was driven by prior periods' foreign currency translation losses related to Thompsons, previously recorded in Other Comprehensive Income, that were recognized in earnings upon the consolidation of Thompsons.

Ethanol Group

Operating results for the Ethanol Group decreased $5.1 million from the same period last year. Sales and merchandising revenues increased $78.6 million and cost of sales and merchandising revenues increased $80.0 million compared to 2018 results. The incremental sales and corresponding cost of sales are attributable to the LTG acquisition. Lower average sales prices from an oversupply of ethanol in the market resulted in decreased gross profit of $1.4 million.

Operating, administrative and general expenses increased $2.7 million primarily due to an increase in labor and benefits, most of which was from the addition of the acquired ethanol trading team.

Interest expense decreased $1.4 million due to the capitalization of interest related to the construction of the ELEMENT plant.

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Plant Nutrient Group

Operating results for the Plant Nutrient Group decreased $4.2 million compared to the same period in the prior year. Sales and merchandising revenues decreased $39.6 million. This was driven by a significant decrease in primary and specialty ton volumes. These decreases are due to unfavorable weather conditions as well as higher volumes in the lawn business that did not recur in the current year. Cost of sales and merchandising revenues decreased by $39.9 million due to the decrease in sales. While primary nutrient volumes decreased, improved margins led to increased gross profit of $0.3 million.

Operating, administrative and general expenses increased $2.9 million primarily due an increase in rent and storage and unfavorable costs from low production volumes due to weak market conditions.

Interest expense increased $1.6 million from carrying higher levels of inventories as a result of the wet weather that delayed and reduced planting.

Rail Group

Operating results for the Rail Group increased $2.6 million from the same period in the prior year. While operating results improved sales and merchandising revenues decreased $7.4 million. This decrease in revenues was driven by a decrease of $14.3 million in car sale revenues as the Company sold more cars in 2018, partially offset by an increase of $5.1 million in leasing revenues due to higher utilization rates with more cars on lease and $1.8 million in repair and other revenues. Cost of sales and merchandising revenues decreased $12.0 million compared to the prior year due to lower car sales and improved margins in services.

Operating, administrative and general expenses increased $3.8 million driven by a $1.1 million increase in labor and benefits due to the growth of the repair business and increased costs related to opening and closing repair shops and increased labor and workers’ compensation expenses. The prior period results also include an impairment charge on idle fleet assets. As a result, gross profit increased $4.6 million compared to last year.

Interest expense increased $2.8 million due to rising interest rates and higher debt balances.

Other

Operating, administrative and general expenses decreased $1.4 million due to severance and other IT implementation costs reflected in 2018 which did not recur in 2019.

Income Taxes

For the six months ended June 30, 2019, the Company recorded income tax expense of $5.6 million at an effective rate of 26.7%. In 2018, the Company recorded an income tax expense of $7.4 million at an effective tax rate of 27.7%. The decrease in effective tax rate for the six months ended June 30, 2019 as compared to the same period last year was primarily attributed to income taxes on foreign earnings and discrete activity in the prior period for a statutory merger that did not recur in the current period.

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Liquidity and Capital Resources

Working Capital

At June 30, 2019, the Company had working capital of $464.1 million. The following table presents changes in the components of current assets and current liabilities:



(in thousands)	June 30, 2019		June 30, 2018		Variance
Current Assets:
Cash and cash equivalents	$	11,087	$	58,611	$	(47,524	)
Accounts receivable, net	712,294		218,476		493,818
Inventories	753,641		495,611		258,030
Commodity derivative assets – current	233,015		54,259		178,756
Other current assets	58,439		42,648		15,791
Assets held for sale	151		9,816		(9,665		)
Total current assets	1,768,627		879,421		889,206
Current Liabilities:
Short-term debt	426,125		185,000		241,125
Trade and other payables	527,250		282,221		245,029
Customer prepayments and deferred revenue	49,761		16,103		33,658
Commodity derivative liabilities – current	69,369		85,160		(15,791		)
Accrued expenses and other current liabilities	165,383		74,512		90,871
Current maturities of long-term debt	66,678		13,700		52,978
Total current liabilities	1,304,566		656,696		647,870
Working Capital	$	464,061	$	222,725	$	241,336

June 30, 2019 current assets increased $889 million in comparison to June 30, 2018. This increase was related to the Trade Group as the current assets balance for the group increased by $914 million from the prior year due to the LTG acquisition. See also the discussion below on additional sources and uses of cash for an understanding of the decrease in cash from prior year.

Current liabilities increased $648 million compared to the prior year as the Trade Group current liabilities increased by $366 million due to the acquisition of LTG, and Corporate current liabilities increased by $277 million from the increased debt related to the acquisition detailed in Note 4, Debt.

Sources and Uses of Cash

Operating Activities

Our operating activities used cash of $84.8 million and $43.9 million in the first six months of 2019 and 2018, respectively. The increase in cash used was due to changes in working capital, as discussed above.

Investing Activities

Investing activities used cash of $271.4 million through the first six months of 2019 compared to cash used of $46.4 million in the prior year. Cash used for the acquisition of business increased $147.7 million due to the LTG acquisition.

In 2019, we expect to spend up to a total of $160 million for the purchase of railcars and related leases and capitalized modifications of railcars. We also expect these purchases to be funded from sales and dispositions of railcars or non-recourse debt of approximately $135 million during the year.

In addition to the construction of the bio-refinery, total capital spending for 2019 on property, plant and equipment in our base business excluding rail leasing activity, but inclusive of information technology spending is expected to be approximately $180 million.

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Financing Activities

Financing activities provided cash of $344.4 million and $114.1 million for the six months ended June 30, 2019 and 2018, respectively. This was largely due to an increase in proceeds from new debt issued to finance the LTG acquisition and higher seasonal working capital.

We are party to borrowing arrangements with a syndicate of banks that provide a total of $1,628.4 million in borrowings. This amount includes $70 million of debt of ELEMENT LLC, $200 million of debt of The Andersons Railcar Leasing Company LLC, that is non-recourse to the Company, and $183.4 million of debt of Thompsons, that is non-recourse to the Company. Of that total, we had $1,006.1 million available for borrowing at June 30, 2019. Consistent with the higher sales volumes as a result of the acquisition borrowings have also increased.

We paid $11.0 million in dividends in the six months of 2019 compared to $9.3 million in the prior year. We paid $0.17 per common share for the dividends paid in January and April of 2019 and $0.165 per common share for the dividends paid in January and April of 2018. On May 10, 2019 we declared a cash dividend of $0.17 per common share payable on July 22, 2019 to shareholders of record on July 1, 2019.

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 June 30, 2019. 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 and railcar assets.

Because we are a significant borrower of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on our profitability. However, much of this risk is mitigated by hedging instruments that are in place. 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 could 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.

Contractual Obligations

Future payments due under contractual obligations at June 30, 2019 are as follows:



	Payments Due by Period
(in thousands)	2019 (remaining six months)		2020-2021		2022-2023		After 2023		Total
Long-term debt, recourse	$	44,549	$	133,841	$	313,459	$	332,325	$	824,174
Long-term debt, non-recourse	4,829		130,859		9,961		6,370		152,019
Interest obligations (a)	41,022		64,013		38,650		30,989		174,674
Operating leases (b)	30,678		34,749		12,294		8,688		86,409
Purchase commitments (c)	2,229,633		665,976		1,395		—		2,897,004
Other long-term liabilities (d)	3,317		6,711		6,804		24,695		41,527
Construction commitment (e)	39,747		—		—		—		39,747
Total contractual cash obligations	$	2,393,775	$	1,036,149	$	382,563	$	403,067	$	4,215,554

(a) Future interest obligations are calculated based on interest rates in effect as of June 30, 2019 for the Company's variable rate debt and do not include any assumptions on expected borrowings, if any, under the short-term line of credit.

(b) Approximately 39% of the operating lease commitments above relate to Rail Group assets that the Company leases from financial intermediaries.

(c) Includes the amounts related to purchase obligations in the Company's operating units, including $2,582 million for the purchase of commodities, including grain from producers and $235 million for the purchase of ethanol from the unconsolidated ethanol LLCs. There are also forward commodities sales contracts, including those for grain and ethanol, to consumers and traders and the net of these forward contracts are offset by exchange-traded futures and options contracts or over-the-counter contracts. See the narrative description of businesses for the Grain and Ethanol Groups in Item 1 of 2018 Annual Report on Form 10-K for further discussion.

(d) Other long-term liabilities include estimated obligations under our retiree healthcare programs and principal and interest payments for the financing arrangement on our headquarters. Obligations under the retiree healthcare programs are not fixed commitments and will vary depending on various factors, including the level of participant utilization and inflation. Our estimates of postretirement payments through 2023 have considered recent payment trends and actuarial assumptions.

(e) In 2018, the Company entered into an agreement to construct a bio-refinery. The company expects to contribute $70 million in 2019 for the construction of this plant.

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At June 30, 2019, we had standby letters of credit outstanding of $32.9 million.

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.

The following table describes our Rail Group asset positions at June 30, 2019:



Method of Control	Financial Statement	Units
Owned - railcars available for sale	On balance sheet – current	289
Owned - railcar assets leased to others	On balance sheet – non-current	21,363
Railcars leased from financial intermediaries	Off balance sheet	2,101
Railcars in non-recourse arrangements	Off balance sheet	170
Total Railcars		23,923
Locomotive assets leased to others	On balance sheet – non-current	24
Locomotives leased from financial intermediaries	Off balance sheet	4
Total Locomotives		28
Barge assets leased from financial intermediaries	Off balance sheet	15
Total Barges		15

In addition, we manage 1,027 railcars for third party customers or owners for which we receive a fee.

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, 2018. There were no material changes in market risk, specifically commodity and interest rate risk during the quarter ended June 30, 2019.

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 June 30, 2019, 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, 2018. 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

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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 acquired the remaining equity of LTG and Thompsons during the first quarter of 2019. In connection with the integration of LTG and Thompsons, the Company will implement enhancements to its internal control over financial reporting as necessary. Additionally, 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.

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 2018 Form 10-K (Item 1A).

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



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 2019	704	32.32	—	—
May 2019	—	—	—	—
June 2019	—	—	—	—
Total	704	32.32	—	—

(1) During the three months ended June 30, 2019, the company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

(2) No shares were purchased as part of publicly announced plans or programs.

Item 4. Mine Safety Disclosure

We are committed to protecting the occupational health and well-being of each of our employees. Safety is one of our core values and we strive to ensure that safety is the first priority for all employees. Our internal objective is to achieve zero injuries and incidents across the Company by focusing on proactively identifying needed prevention activities, establishing standards and evaluating performance to mitigate any potential loss to people, equipment, production and the environment. We have implemented employee training that is geared toward maintaining a high level of awareness and knowledge of safety and health issues in the work environment. We believe that through these policies we have developed an effective safety management system.

Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, the required mine safety results regarding certain mining safety and health matters for each of our

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mine locations that are covered under the scope of the Dodd-Frank Act are included in Exhibit 95 of Item 6. Exhibits of this Quarterly Report on Form 10-Q.

Item 6. Exhibits

(a) Exhibits




No.		Description

10.1		Form of Performance Share Unit Agreement - Earnings Per Share (filed herewith).

10.2		Form of Restricted Share Award - Non-Employee Directors Agreement (filed herewith).

31.1		Certification of the Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a) (filed herewith).

31.2		Certification of the Chief Financial Officer under Rule 13(a)-14(a)/15d-14(a) (filed herewith).

32.1		Certifications Pursuant to 18 U.S.C. Section 1350 (filed herewith).

95		Mine Safety Disclosure (filed herewith).

101		Financial Statements from the interim report on Form 10-Q of The Andersons, Inc. for the period ended June 30, 2019, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (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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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: August 8, 2019		By /s/ Patrick E. Bowe
		Patrick E. Bowe
		Chief Executive Officer (Principal Executive Officer)

Date: August 8, 2019		By /s/ Brian A. Valentine
		Brian A. Valentine
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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Exhibit Index

The Andersons, Inc.




No.		Description

10.1		Form of Performance Share Unit Agreement - Earnings Per Share (filed herewith).

10.2		Form of Restricted Share Award - Non-Employee Directors Agreement (filed herewith).

31.1		Certification of the Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a) (filed herewith).

31.2		Certification of the Chief Financial Officer under Rule 13(a)-14(a)/15d-14(a) (filed herewith).

32.1		Certifications Pursuant to 18 U.S.C. Section 1350 (filed herewith).

95		Mine Safety Disclosure (filed herewith).

101		Financial Statements from the interim report on Form 10-Q of The Andersons, Inc. for the period ended June 30, 2019, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (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.

The Andersons, Inc. - 10-Q quarterly report FY2019 Q2

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