The Andersons, Inc. - 10-Q quarterly report FY2021 Q2

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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 06/30/2021


☐			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)

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

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 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, a smaller reporting company, or an emerging growth 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	☐	Accelerated filer	ý
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 33,282,749 common shares outstanding at July 23, 2021.

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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, 2021, December 31, 2020 and June 30, 2020			1
Condensed Consolidated Statements of Operations – Three and Six months ended June 30, 2021 and 2020			2
Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Six months ended June 30, 2021 and 2020			3
Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2021 and 2020			4
Condensed Consolidated Statements of Equity – Three and Six months ended June 30, 2021 and 2020			5
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures about Market Risk			31
Item 4. Controls and Procedures			32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 4. Mine Safety Disclosure			33
Item 6. Exhibits			34

The Andersons, Inc. | Q2 2021 Form 10-Q | 2

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Part I. Financial Information

Item 1. Financial Statements

The Andersons, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)(In thousands)


	June 30, 2021		December 31, 2020		June 30, 2020
Assets
Current assets:
Cash and cash equivalents	$	27,538	$	29,123	$	30,011
Accounts receivable, net	721,575		659,834		537,011
Inventories (Note 2)	912,299		1,300,693		616,323
Commodity derivative assets – current (Note 5)	507,148		320,706		112,089
Other current assets	65,740		106,053		102,755
Total current assets	2,234,300		2,416,409		1,398,189
Other assets:
Goodwill	135,709		135,709		135,709
Other intangible assets, net	127,756		142,940		160,180
Right of use assets, net	61,299		56,031		62,838
Other assets, net	73,678		49,907		48,235
Total other assets	398,442		384,587		406,962
Rail assets leased to others, net (Note 3)	574,585		591,946		592,821
Property, plant and equipment, net (Note 3)	841,762		879,179		906,017
Total assets	$	4,049,089	$	4,272,121	$	3,303,989
Liabilities and equity
Current liabilities:
Short-term debt (Note 4)	$	757,271	$	403,703	$	96,071
Trade and other payables	547,169		957,683		503,892
Customer prepayments and deferred revenue	58,155		180,160		45,734
Commodity derivative liabilities – current (Note 5)	90,366		146,990		65,186
Current maturities of long-term debt (Note 4)	56,582		75,475		68,477
Accrued expenses and other current liabilities	181,015		167,671		147,422
Total current liabilities	1,690,558		1,931,682		926,782
Long-term lease liabilities	41,852		37,177		41,061
Long-term debt, less current maturities (Note 4)	866,454		916,540		975,973
Deferred income taxes	173,212		170,147		162,475
Other long-term liabilities	52,049		55,915		65,615
Total liabilities	2,824,125		3,111,461		2,171,906
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common shares, without par value (63,000 shares authorized; 33,786, 33,599 and 33,599 shares issued at 6/30/2021, 12/31/2020 and 6/30/2020, respectively)	140		138		138
Preferred shares, without par value (1,000 shares authorized; none issued)	—		—		—
Additional paid-in-capital	357,606		348,714		343,730
Treasury shares, at cost (111, 45 and 40 shares at 6/30/2021, 12/31/2020 and 6/30/2020, respectively)	(2,650)		(966)		(953)
Accumulated other comprehensive loss	(1,837)		(12,076)		(26,245)
Retained earnings	669,241		626,081		622,718
Total shareholders’ equity of The Andersons, Inc.	1,022,500		961,891		939,388
Noncontrolling interests	202,464		198,769		192,695
Total equity	1,224,964		1,160,660		1,132,083
Total liabilities and equity	$	4,049,089	$	4,272,121	$	3,303,989

See Notes to Condensed Consolidated Financial Statements

The Andersons, Inc. | Q2 2021 Form 10-Q | 1

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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,
	2021		2020		2021		2020
Sales and merchandising revenues (Note 6)	$	3,273,726	$	1,890,180	$	5,909,455	$	3,743,286
Cost of sales and merchandising revenues	3,099,682		1,783,914		5,612,699		3,573,890
Gross profit	174,044		106,266		296,756		169,396
Operating, administrative and general expenses	109,976		90,136		209,848		195,196
Interest expense, net	13,454		11,827		26,623		27,414
Other income, net:
Equity in earnings of affiliates, net	845		79		2,639		209
Other income, net	5,307		3,450		12,849		8,263
Income (loss) before income taxes	56,766		7,832		75,773		(44,742)
Income tax provision (benefit)	10,642		(12,200)		16,387		(13,664)
Net income (loss)	46,124		20,032		59,386		(31,078)
Net income (loss) attributable to noncontrolling interests	2,625		(10,407)		780		(23,856)
Net income (loss) attributable to The Andersons, Inc.	$	43,499	$	30,439	$	58,606	$	(7,222)
Per common share:
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders (Note 9)	$	1.31	$	0.92	$	1.76	$	(0.22)
Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders (Note 9)	$	1.30	$	0.92	$	1.74	$	(0.22)

See Notes to Condensed Consolidated Financial Statements

The Andersons, Inc. | Q2 2021 Form 10-Q | 2

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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,
	2021		2020		2021		2020
Net income (loss)	$	46,124	$	20,032	$	59,386	$	(31,078)
Other comprehensive income (loss), net of tax:
Change in unrecognized actuarial gain (loss) and prior service cost	(234)		15		(337)		(101)
Foreign currency translation adjustments	1,469		3,249		2,693		(3,390)
Cash flow hedge activity	(1,858)		(1,860)		7,883		(15,523)
Other comprehensive income (loss)	(623)		1,404		10,239		(19,014)
Comprehensive income (loss)	45,501		21,436		69,625		(50,092)
Comprehensive income (loss) attributable to the noncontrolling interests	2,625		(10,407)		780		(23,856)
Comprehensive income (loss) attributable to The Andersons, Inc.	$	42,876	$	31,843	$	68,845	$	(26,236)

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,
	2021		2020
Operating Activities
Net income (loss)	$	59,386	$	(31,078)
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:
Depreciation and amortization	95,154		93,898
Bad debt (recovery) expense, net	(1,156)		6,290
Equity in earnings of affiliates, net of dividends	(2,639)		(209)
Gain on sales of Rail assets and related leases, net	(4,987)		(569)
(Gain) loss on sales of assets, net	(1,266)		341
Stock-based compensation expense	4,112		5,016
Deferred federal income tax	170		21,761
Inventory write down	2,599		10,922
Other	2,971		2,797
Changes in operating assets and liabilities:
Accounts receivable	(58,338)		(9,181)
Inventories	390,506		536,951
Commodity derivatives	(250,691)		14,980
Other assets	35,568		(24,784)
Payables and other accrued expenses	(516,883)		(481,624)
Net cash (used in) provided by operating activities	(245,494)		145,511
Investing Activities
Purchases of Rail assets	(4,751)		(24,649)
Proceeds from sale of Rail assets	15,616		4,637
Purchases of property, plant and equipment and capitalized software	(34,264)		(44,644)
Proceeds from sale of assets	3,794		1,503
Purchase of investments	(4,701)		(2,849)
Other	832		—
Net cash used in investing activities	(23,474)		(66,002)
Financing Activities
Net borrowings (payments) under lines of credit	(258,157)		(47,564)
Proceeds from issuance of short-term debt	608,250		—
Proceeds from issuance of long-term debt	108,300		165,975
Payments of long-term debt	(177,586)		(203,835)
Contributions from noncontrolling interest owner	2,940		4,409
Distributions to noncontrolling interest owner	(25)		(10,298)
Payments of debt issuance costs	(2,059)		(250)
Dividends paid	(11,677)		(11,469)
Other	(2,436)		(2,036)
Net cash provided by (used in) financing activities	267,550		(105,068)
Effect of exchange rates on cash and cash equivalents	(167)		675
Decrease in cash and cash equivalents	(1,585)		(24,884)

Cash and cash equivalents at beginning of period	29,123		54,895
Cash and cash equivalents at end of period	$	27,538	$	30,011

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, 2020	$	137	$	341,382	$	(652)	$	(27,649)	$	599,039	$	201,605	$	1,113,862
Net income (loss)									30,439		(10,407)		20,032
Other comprehensive loss							(234)						(234)
Amounts reclassified from accumulated other comprehensive income							1,638						1,638
Contributions from noncontrolling interests											1,102		1,102
Noncontrolling interests recognized in connection with business combination			(459)								395		(64)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (20 shares)	1		2,807		(454)				(843)				1,511
Dividends declared ($0.175 per common share)									(5,764)				(5,764)
Restricted share award dividend equivalents					153				(153)				—
Balance at June 30, 2020	$	138	$	343,730	$	(953)	$	(26,245)	$	622,718	$	192,695	$	1,132,083

Balance at March 31, 2021	$	140	$	355,961	$	(2,872)	$	(1,214)	$	631,652	$	198,884	$	1,182,551
Net income (loss)									43,499		2,625		46,124
Other comprehensive loss							(2,108)						(2,108)
Amounts reclassified from accumulated other comprehensive income							1,485						1,485
Contributions from noncontrolling interests											980		980
Distributions to noncontrolling interests											(25)		(25)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (11 shares)			1,645		138								1,783
Dividends declared ($0.175 per common share)									(5,826)				(5,826)
Restricted share award dividend equivalents					84				(84)				—
Balance at June 30, 2021	$	140	$	357,606	$	(2,650)	$	(1,837)	$	669,241	$	202,464	$	1,224,964

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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, 2019	$	137	$	345,359	$	(7,342)	$	(7,231)	$	642,687	$	222,045	$	1,195,655
Net income (loss)									(7,222)		(23,856)		(31,078)
Other comprehensive loss							(21,208)						(21,208)
Amounts reclassified from accumulated other comprehensive income							2,194						2,194
Contributions from noncontrolling interests											4,409		4,409
Distributions to noncontrolling interests											(10,298)		(10,298)
Noncontrolling interests recognized in connection with business combination			(459)								395		(64)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (167 shares)	1		(1,170)		5,998				(843)				3,986
Dividends declared ($0.350 per common share)									(11,513)				(11,513)
Restricted share award dividend equivalents					391				(391)				—
Balance at June 30, 2020	$	138	$	343,730	$	(953)	$	(26,245)	$	622,718	$	192,695	$	1,132,083

Balance at December 31, 2020	$	138	$	348,714	$	(966)	$	(12,076)	$	626,081	$	198,769	$	1,160,660
Net income (loss)									58,606		780		59,386
Other comprehensive income							7,311						7,311
Amounts reclassified from accumulated other comprehensive income							2,928						2,928
Contributions from noncontrolling interests											2,940		2,940
Distributions to noncontrolling interests											(25)		(25)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (67 shares)	2		8,892		(2,016)				(3,480)				3,398
Dividends declared ($0.350 per common share)									(11,634)				(11,634)
Restricted share award dividend equivalents					332				(332)				—
Balance at June 30, 2021	$	140	$	357,606	$	(2,650)	$	(1,837)	$	669,241	$	202,464	$	1,224,964

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”). Controlled subsidiaries include majority-owned subsidiaries and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. The portion of these entities that is not owned by the Company is presented as noncontrolling interests. 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, 2021. An unaudited Condensed Consolidated Balance Sheet as of June 30, 2020 has been included as the Company operates in several seasonal industries.

The Condensed Consolidated Balance Sheet data at December 31, 2020 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, 2020 (the “2020 Form 10-K”).

Recently Adopted Accounting Pronouncements

Simplified Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update 2019-12. The new standard simplifies accounting for income taxes, including guidance relating to the approach for calculating income taxes in an interim period, intraperiod tax allocation, and the recognition of deferred tax liabilities among other items. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The new standard does not have a material impact to the company’s financial statements or disclosures.

2. Inventories

Major classes of inventories are presented below. Readily Marketable Inventories ("RMI") are agricultural commodity inventories such as corn, soybeans, wheat, and ethanol co-products, among others, carried at net realizable value which approximates fair value based on their commodity characteristics, widely available markets, and pricing mechanisms. The net realizable value of RMI is calculated as the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. All other inventories are held at lower of cost or net realizable value.


(in thousands)	June 30, 2021		December 31, 2020		June 30, 2020
Grain and other agricultural products (a)	$	636,380	$	1,025,809	$	452,339
Frac sand and propane (a)	11,265		12,477		6,498
Ethanol and co-products (a)	155,993		114,895		63,195
Plant nutrients and cob products	101,286		139,885		87,346
Railcar repair parts	7,375		7,627		6,945
Total Inventories	$	912,299	$	1,300,693	$	616,323

(a) Includes RMI of $612.2 million, $983.2 million and $418.0 million at June 30, 2021, December 31, 2020 and June 30, 2020, respectively.

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Inventories do not include 1.2 million, 3.0 million and 1.7 million bushels of grain held in storage for others as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively. 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.

Lower of cost or net realizable value charges were $2.6 million and $10.9 million for the six months ended June 30, 2021 and June 30, 2020, respectively. The charge in the prior year was a result of lower ethanol market prices and decreased demand as a result of the COVID-19 pandemic.

3. Property, Plant and Equipment

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


(in thousands)	June 30, 2021		December 31, 2020		June 30, 2020
Land	$	39,884	$	40,222	$	40,188
Land improvements and leasehold improvements	97,454		96,700		96,028
Buildings and storage facilities	386,832		387,992		377,652
Machinery and equipment	948,517		925,074		881,144
Construction in progress	19,987		19,725		35,982
	1,492,674		1,469,713		1,430,994
Less: accumulated depreciation	650,912		590,534		524,977
Property, plant and equipment, net	$	841,762	$	879,179	$	906,017

Depreciation expense on property, plant and equipment was $64.2 million and $62.3 million for the six months ended June 30, 2021 and 2020, respectively. Additionally, depreciation expense on property, plant and equipment was $32.3 million and $31.2 million for the three months ended June 30, 2021 and 2020, respectively.

Rail Assets

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


(in thousands)	June 30, 2021		December 31, 2020		June 30, 2020
Rail assets leased to others	$	735,255	$	750,473	$	742,107
Less: accumulated depreciation	160,670		158,527		149,286
Rail assets, net	$	574,585	$	591,946	$	592,821

Depreciation expense on Rail assets leased to others amounted to $15.3 million and $15.4 million for the six months ended June 30, 2021 and 2020, respectively. Additionally, depreciation expense on Rail assets leased to others amounted to $7.6 million and $7.7 million for the three months ended June 30, 2021 and 2020, respectively.

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4. Debt

Short-term and long-term debt at June 30, 2021, December 31, 2020 and June 30, 2020 consisted of the following:


(in thousands)	June 30, 2021		December 31, 2020		June 30, 2020
Short-term debt – non-recourse	$	120,020	$	93,192	$	43,284
Short-term debt – recourse	637,251		310,511		52,787
Total short-term debt	$	757,271	$	403,703	$	96,071

Current maturities of long-term debt – non-recourse	$	9,078	$	6,438	$	4,845
Current maturities of long-term debt – recourse	47,504		69,037		63,632
Total current maturities of long-term debt	$	56,582	$	75,475	$	68,477

Long-term debt, less: current maturities – non-recourse	$	116,219	$	143,406	$	325,819
Long-term debt, less: current maturities – recourse	750,235		773,134		650,154
Total long-term debt, less: current maturities	$	866,454	$	916,540	$	975,973

On February 4, 2021, the Company completed the second amendment to its credit agreement dated January 11, 2019. The amendment, which replaced an underwritten bridge loan received on January 21, 2021, provided for a short-term $250 million term note in which the entire stated principal is due on December 31, 2021. The term note bears interest at variable rates, which are based on LIBOR plus an applicable spread.

On May 6, 2021, the Company completed the third amendment to its credit agreement dated January 11, 2019. The amendment provides for a short term note of approximately $358 million in which the entire stated principal is due on March 31, 2022. The term note will bear interest at variable rates, which are based on LIBOR plus an applicable spread.

The total borrowing capacity of the Company's lines of credit at June 30, 2021 was $1,404.6 million of which the Company had a total of $1,173.5 million available for borrowing under its lines of credit. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit.

As of June 30, 2021, December 31, 2020 and June 30, 2020, the estimated fair value of long-term debt, including the current portion, was $946.8 million, $1,026.8 million and $1,090.1 million, respectively. The Company estimates the fair value of its long-term debt based upon the Company’s credit standing and current interest rates offered to the Company on similar bonds and rates currently available to the Company for long-term borrowings with similar terms and remaining maturities.

The Company is in compliance with all financial covenants as of June 30, 2021.

5. Derivatives

The Company’s operating results are affected by changes to commodity prices. The Trade and Ethanol businesses have established “unhedged” futures 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 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.

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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 commodity 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, 2021, December 31, 2020 and June 30, 2020, 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 non-current commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:


(in thousands)	June 30, 2021		December 31, 2020		June 30, 2020
Cash collateral paid	$	219,469	$	208,670	$	799
Fair value of derivatives	(180,842)		(157,301)		21,363
Net derivative asset position	$	38,627	$	51,369	$	22,162

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


	June 30, 2021
(in thousands)	Commodity Derivative Assets - Current		Commodity Derivative Assets - Noncurrent		Commodity Derivative Liabilities - Current		Commodity Derivative Liabilities - Noncurrent		Total
Commodity derivative assets	$	547,186	$	16,480	$	34,327	$	423	$	598,416
Commodity derivative liabilities	(259,507)		(873)		(124,693)		(3,874)		(388,947)
Cash collateral paid	219,469		—		—		—		219,469
Balance sheet line item totals	$	507,148	$	15,607	$	(90,366)	$	(3,451)	$	428,938

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	December 31, 2020
(in thousands)	Commodity Derivative Assets - Current		Commodity Derivative Assets - Noncurrent		Commodity Derivative Liabilities - Current		Commodity Derivative Liabilities - Noncurrent		Total
Commodity derivative assets	$	304,533	$	4,328	$	19,386	$	14	$	328,261
Commodity derivative liabilities	(192,023)		(348)		(166,850)		(243)		(359,464)
Cash collateral paid	208,196		—		474		—		208,670
Balance sheet line item totals	$	320,706	$	3,980	$	(146,990)	$	(229)	$	177,467


	June 30, 2020
(in thousands)	Commodity Derivative Assets - Current		Commodity Derivative Assets - Noncurrent		Commodity Derivative Liabilities - Current		Commodity Derivative Liabilities - Noncurrent		Total
Commodity derivative assets	$	142,110	$	2,916	$	5,511	$	124	$	150,661
Commodity derivative liabilities	(30,820)		(214)		(70,697)		(3,813)		(105,544)
Cash collateral paid	799		—		—		—		799
Balance sheet line item totals	$	112,089	$	2,702	$	(65,186)	$	(3,689)	$	45,916

The net pre-tax 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, 2021 and 2020 are as follows:


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Gains on commodity derivatives included in cost of sales and merchandising revenues	$	73,688	$	8,797	$	240,673	$	39,757

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The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2021, December 31, 2020 and June 30, 2020:


	June 30, 2021
(in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	696,674	—	—	—
Soybeans	75,507	—	—	—
Wheat	129,264	—	—	—
Oats	45,810	—	—	—
Ethanol	—	198,316	—	—
Corn oil	—	—	70,637	—
Soybean Oil	—	—	23,952	—
Other	7,803	3,957	2,757	1,925
Subtotal	955,058	202,273	97,346	1,925
Exchange traded:
Corn	243,190	—	—	—
Soybeans	49,375	—	—	—
Wheat	80,004	—	—	—
Oats	1,430	—	—	—
Ethanol	—	112,812	—	—
Propane	—	18,480	—	—
Other	—	5	2,351	197
Subtotal	373,999	131,297	2,351	197
Total	1,329,057	333,570	99,697	2,122


	December 31, 2020
(in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	684,654	—	—	—
Soybeans	73,521	—	—	—
Wheat	109,661	—	—	—
Oats	27,482	—	—	—
Ethanol	—	124,795	—	—
Corn oil	—	—	36,015	—
Soybean oil	—	—	26,510	—
Other	4,371	2,058	740	1,859
Subtotal	899,689	126,853	63,265	1,859
Exchange traded:
Corn	267,792	—	—	—
Soybeans	53,730	—	—	—
Wheat	80,733	—	—	—
Oats	1,800	—	—	—
Ethanol	—	73,584	—	—
Propane	—	17,094	—	—
Other	—	2,898	14	149
Subtotal	404,055	93,576	14	149
Total	1,303,744	220,429	63,279	2,008

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	June 30, 2020
(in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	437,275	—	—	—
Soybeans	50,012	—	—	—
Wheat	95,133	—	—	—
Oats	49,053	—	—	—
Ethanol	—	141,549	—	—
Corn oil	—	—	8,098	—
Other	25,005	5,000	415	2,370
Subtotal	656,478	146,549	8,513	2,370
Exchange traded:
Corn	287,840	—	—	—
Soybeans	36,970	—	—	—
Wheat	67,040	—	—	—
Oats	685	—	—	—
Ethanol	—	27,300	—	—

Propane	—	28,602	—	—
Other	—	13,650	340	208
Subtotal	392,535	69,552	340	208
Total	1,049,013	216,101	8,853	2,578

Interest Rate and Other Derivatives

The Company’s objectives for 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 designated as hedging instruments 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, 2021, December 31, 2020 and June 30, 2020, the Company had recorded the following amounts for the fair value of the Company's other derivatives:


(in thousands)	June 30, 2021		December 31, 2020		June 30, 2020
Derivatives not designated as hedging instruments
Interest rate contracts included in Accrued expenses and other current liabilities	$	—	$	(589)	$	(1,174)
Interest rate contracts included in Other long-term liabilities	(309)		(430)		(553)
Foreign currency contracts included in Other current assets	1,523		2,753		791
Derivatives designated as hedging instruments
Interest rate contracts included in Other current assets	$	3,849	$	164	$	—
Interest rate contracts included in Accrued expenses and other current liabilities	(6,944)		(6,664)		(8,806)
Interest rate contracts included in Other long-term liabilities	(11,506)		(18,539)		(24,388)

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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)	2021		2020		2021		2020
Derivatives not designated as hedging instruments
Interest rate derivative gains (losses) included in Interest income (expense), net	$	355	$	186	$	709	$	(720)

Derivatives designated as hedging instruments
Interest rate derivative losses included in Other comprehensive income (loss)	2,471		(2,475)		$	(10,476)	$	(20,657)
Interest rate derivatives losses included in Interest income (expense), net	$	(1,656)	$	(1,917)	(3,273)		(2,700)

Outstanding interest rate derivatives, as of June 30, 2021, 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%
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	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%
Swap	2020	2023	$	50.0	Interest rate component of debt - accounted for as a hedge	0.0% to 0.8%
Swap	2020	2023	$	50.0	Interest rate component of debt - accounted for as a hedge	0.0% to 0.7%
Swap	2020	2030	$	50.0	Interest rate component of debt - accounted for as a hedge	0.0% to 0.8%
Swap	2020	2030	$	50.0	Interest rate component of debt - accounted for as a hedge	0.0% to 0.8%

6. Revenue

Many of the Company’s revenues are generated from contracts that are outside the scope of Accounting Standard Codification ("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 leasing revenue is accounted for under ASC 842, Leases. The breakdown of revenues between ASC 606 and other standards are as follows:


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Revenues under ASC 606	$	640,083	$	459,105	$	1,146,551	$	806,607
Revenues under ASC 815	2,611,981		1,406,307		4,719,603		2,886,360
Revenues under ASC 842	21,662		24,768		43,301		50,319
Total revenues	$	3,273,726	$	1,890,180	$	5,909,455	$	3,743,286

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The Company's revenues under ASC 842 are as follows:


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Operating lease revenue	$	20,458	$	23,276	$	41,308	$	47,332
Sales-type lease revenue	101		232		202		334
Variable lease revenue	1,103		1,260		1,791		2,653
Total revenues	$	21,662	$	24,768	$	43,301	$	50,319

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, 2021 and 2020, respectively:


	Three months ended June 30, 2021
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Total
Specialty nutrients	$	—	$	—	$	84,915	$	—	$	84,915
Primary nutrients	—		—		213,604		—		213,604
Services	2,114		—		3,869		9,233		15,216
Products and co-products	74,948		184,263		—		—		259,211
Frac sand and propane	36,649		—		—		—		36,649
Other	4,037		394		19,020		7,037		30,488
Total	$	117,748	$	184,657	$	321,408	$	16,270	$	640,083


	Three months ended June 30, 2020
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Total
Specialty nutrients	$	—	$	—	$	82,634	$	—	$	82,634
Primary nutrients	—		—		188,463		—		188,463
Service	2,357		—		2,596		8,658		13,611
Products and co-products	63,344		75,773		—		—		139,117
Frac sand and propane	21,439		—		—		—		21,439
Other	5,330		352		6,132		2,027		13,841
Total	$	92,470	$	76,125	$	279,825	$	10,685	$	459,105


	Six months ended June 30, 2021
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Total
Specialty nutrients	$	—	$	—	$	161,721	$	—	$	161,721
Primary nutrients	—		—		285,263		—		285,263
Service	3,568		—		5,158		19,177		27,903
Products and co-products	146,936		329,907		—		—		476,843
Frac sand and propane	128,714		—		—		—		128,714
Other	6,969		4,153		38,518		16,467		66,107
Total	$	286,187	$	334,060	$	490,660	$	35,644	$	1,146,551

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	Six months ended June 30, 2020
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Total
Specialty nutrients	$	—	$	—	$	155,865	$	—	$	155,865
Primary nutrients	—		—		234,153		—		234,153
Service	4,043		—		2,778		17,394		24,215
Products and co-products	116,509		177,472		—		—		293,981
Frac sand and propane	71,314		—		—		—		71,314
Other	9,318		968		11,942		4,851		27,079
Total	$	201,184	$	178,440	$	404,738	$	22,245	$	806,607

Approximately 3% of revenues accounted for under ASC 606 during both three and six months periods ended June 30, 2021 and 2020, respectively, are recorded over time which primarily relates to service revenues noted above.

Contract balances

The balances of the Company’s contract liabilities were $17.0 million and $45.6 million as of June 30, 2021 and December 31, 2020, respectively. The 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 main driver of the contract liabilities balance is payments for primary and specialty nutrients received in advance of fulfilling our performance obligations under our customer contracts. Due to seasonality of this business, contract liabilities were built up at year-end in preparation for the spring application season. As expected the revenue recognized in the current period satisfied the contract liabilities throughout the spring application season.

7. Income Taxes

On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes, if necessary, based on new information or events. The estimated annual effective tax rate is 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 six months ended June 30, 2021, the Company estimated its annual effective tax rate utilizing the annualized effective tax rate method under ASC 740, Income Taxes, to calculate its interim income tax provision. For the six months ended June 30, 2020, the Company utilized the discrete effective tax rate method, as allowed under ASC 740, to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. At the time, it was not possible to reliably estimate the annual effective tax rate for the year due to uncertainty created by the COVID-19 pandemic. As a result, relatively small changes in the provision for income taxes in 2020 caused disproportionate changes in the effective tax rate, as compared to 2021.

For the three months ended June 30, 2021, the Company recorded income tax expense of $10.6 million at an effective income tax rate of 18.7%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due to the impacts of state and local taxes and non-deductible compensation, offset by benefits related to the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The change in effective tax rate for the three months ended June 30, 2021 as compared to the same period last year was primarily attributed to the favorable impact of the mark-to-market activity on certain contracts in the Ethanol segment, coupled with additional benefits from the CARES Act in the prior year. For the three months ended June 30, 2020, using the discrete effective tax rate method to calculate the interim tax provision, the Company recorded an income tax benefit of $12.2 million at an effective income tax rate of 155.8%.

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For the six months ended June 30, 2021, the Company recorded an income tax expense of $16.4 million at an effective income tax rate of 21.6%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due to the impacts of state and local taxes and non-deductible compensation, offset by benefits related to the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The change in effective tax rate for the six months ended June 30, 2021, as compared to the same period last year was primarily attributed to additional tax benefits from net operating loss carry backs as a result of the CARES Act in the prior year, offset by the favorable impact of the mark-to-market activity on the contracts within the ethanol segment. For the six months ended June 30, 2020, using the discrete effective tax rate method to calculate the interim tax provision, the Company recorded an income tax benefit of $13.7 million at an effective income tax rate of 30.5%.

The 2021 effective tax rate can be affected by variances in the estimates and amounts of taxable income among the various states, entities and activity types, realization of tax credits, adjustments from resolution of tax matters under review, valuation allowances and the Company’s assessment of its liability for uncertain tax positions. The amount of unrecognized tax benefits for uncertain tax positions was $44.4 million and $24.7 million as of June 30, 2021 and June 30, 2020, respectively. The unrecognized tax benefits of $44.4 million include $40.6 million recorded as a reduction of the deferred tax asset and refundable credits associated with the Federal Research and Development Credits.

8. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss) attributable to the Company for the three and six months ended June 30, 2021 and 2020:


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Currency Translation Adjustment
Beginning balance	$	6,963	$	(5,574)	$	5,739	$	1,065
Other comprehensive income (loss) before reclassifications	1,469		3,249		2,693		(3,390)

Tax effect	—		—		—		—
Other comprehensive income (loss), net of tax	1,469		3,249		2,693		(3,390)
Ending balance	$	8,432	$	(2,325)	$	8,432	$	(2,325)
Hedging Adjustment
Beginning balance	$	(8,365)	$	(23,106)	$	(18,106)	$	(9,443)
Other comprehensive income (loss) before reclassifications	(3,514)		(3,669)		4,613		(18,059)
Amounts reclassified from accumulated other comprehensive income (loss)(a)	2,208		2,412		4,360		3,381
Tax effect	(552)		(603)		(1,090)		(845)
Other comprehensive income (loss), net of tax	(1,858)		(1,860)		7,883		(15,523)
Ending balance	$	(10,223)	$	(24,966)	$	(10,223)	$	(24,966)
Pension and Other Postretirement Adjustment
Beginning balance	$	(70)	$	773	$	33	$	889
Other comprehensive income (loss) before reclassifications	(63)		186		5		241
Amounts reclassified from accumulated other comprehensive income (loss)(b)	(228)		(228)		(456)		(456)
Tax effect	57		57		114		114
Other comprehensive income (loss), net of tax	(234)		15		(337)		(101)
Ending balance	$	(304)	$	788	$	(304)	$	788
Investments in Convertible Preferred Securities Adjustment
Beginning balance	$	258	$	258	$	258	$	258



Other comprehensive income (loss), net of tax	—		—		—		—
Ending balance	$	258	$	258	$	258	$	258

Total AOCI Ending Balance	$	(1,837)	$	(26,245)	$	(1,837)	$	(26,245)

(a) Amounts reclassified from gain (loss) on cash flow hedges are reclassified from AOCI to income when the hedged item affects earnings and is recognized in Interest expense, net. See Note 5 for additional information.

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(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost recorded in Operating, administrative and general expenses.

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9. Earnings Per Share


(in thousands, except per common share data)	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Numerator:
Net income (loss) available to The Andersons Inc. common shareholders	$	43,499	$	30,439	$	58,606	$	(7,222)
Denominator:
Weighted average shares outstanding – basic	33,263		32,932		33,226		32,876
Effect of dilutive awards	316		77		391		—
Weighted average shares outstanding – diluted	33,579		33,009		33,617		32,876
Earnings (loss) per share
Basic	$	1.31	$	0.92	$	1.76	$	(0.22)
Diluted	$	1.30	$	0.92	$	1.74	$	(0.22)

There were 57 thousand and 471 thousand antidilutive awards for the three months ended June 30, 2021 and June 30, 2020, respectively. There were 82 thousand antidilutive share awards outstanding for the six months ended June 30, 2021.

All awards were antidilutive for the six months ended June 30, 2020 as the Company incurred a net loss.

10. Fair Value Measurements

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2021, December 31, 2020 and June 30, 2020:


(in thousands)	June 30, 2021
Assets (liabilities)	Level 1		Level 2		Level 3		Total
Commodity derivatives, net (a)	$	38,627	$	390,311	$	—	$	428,938
Provisionally priced contracts (b)	32,710		(25,210)		—		7,500
Convertible preferred securities (c)	—		—		13,550		13,550
Other assets and liabilities (d)	5,373		(14,909)		—		(9,536)
Total	$	76,710	$	350,192	$	13,550	$	440,452


(in thousands)	December 31, 2020
Assets (liabilities)	Level 1		Level 2		Level 3		Total

Commodity derivatives, net (a)	$	51,369	$	126,098	$	—	$	177,467
Provisionally priced contracts (b)	19,793		(48,818)		—		(29,025)
Convertible preferred securities (c)	—		—		8,849		8,849
Other assets and liabilities (d)	7,972		(26,058)		—		(18,086)
Total	$	79,134	$	51,222	$	8,849	$	139,205


(in thousands)	June 30, 2020
Assets (liabilities)	Level 1		Level 2		Level 3		Total


Commodity derivatives, net (a)	$	22,162	$	23,754	$	—	$	45,916
Provisionally priced contracts (b)	(15,139)		(41,897)		—		(57,036)
Convertible preferred securities (c)	—		—		8,654		8,654
Other assets and liabilities (d)	4,102		(34,922)		—		(30,820)
Total	$	11,125	$	(53,065)	$	8,654	$	(33,286)

(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 assets, net” on the Company’s Consolidated Balance Sheets related to certain available for sale securities.

(d)Included in other assets and liabilities are assets held by the Company to fund deferred compensation plans and foreign exchange derivative contracts (Level 1), as well as, interest rate derivatives (Level 2).

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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, the Company has 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 RMI which consists of agricultural commodity 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 of RMI is disclosed in Note 2. 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 the Company has 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 convertible preferred securities are interests in several early-stage enterprises that may be in various forms, such as convertible debt or preferred equity securities.

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)	2021		2020
Assets at January 1,	$	8,849	$	8,404
Additional investments	2,800		250

Assets at March 31,	$	11,649	$	8,654
Additional Investments	1,901		—

Assets at June 30,	$	13,550	$	8,654

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The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of June 30, 2021, December 31, 2020 and June 30, 2020:

Quantitative Information about Recurring Level 3 Fair Value Measurements

Fair Value as of

(in thousands)

June 30, 2021

December 31, 2020

June 30, 2020

Valuation Method

Unobservable Input

Weighted Average

Convertible preferred securities (a)

13,550

8,849

8,654

Implied based on market prices

N/A

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

There were no non-recurring fair value measurements as of June 30, 2021, December 31, 2020 and June 30, 2020.

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

11. Related Parties

In the ordinary course of business, and on an arm's length basis, the Company will enter into related party transactions with the minority shareholders of the Company's ethanol operations and several equity method investments that the Company holds, along with other related parties.

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)	2021		2020		2021		2020
Sales revenues	$	85,294	$	29,659	$	151,940	$	84,353
Purchases of product and capital assets	8,662		6,419		20,336		21,996


(in thousands)	June 30, 2021		December 31, 2020		June 30, 2020
Accounts receivable (a)	$	11,835	$	5,623	$	7,332
Accounts payable (b)	2,287		5,251		2,598

(a) Accounts receivable represents amounts due from related parties for the sale of ethanol and other various items.

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

12. Segment Information

The Company’s operations include four reportable business segments that are distinguished primarily on the basis of products and services offered as well as the structure of management. The Trade business includes commodity merchandising and the operation of terminal grain elevator facilities. The Ethanol business produces ethanol and co-products through its five co-owned and fully consolidated ethanol production facilities as well as purchases and sells ethanol and ethanol co-products. 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 and intercompany eliminations between the segments.

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. The Company does not have any customers who represent 10 percent or more of total revenues from external customers.

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	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Revenues from external customers
Trade	$	2,297,869	$	1,351,168	$	4,280,377	$	2,729,209
Ethanol	616,527		223,745		1,059,486		536,784
Plant Nutrient	321,409		279,825		490,661		404,738
Rail	37,921		35,442		78,931		72,555
Total	$	3,273,726	$	1,890,180	$	5,909,455	$	3,743,286


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Income (loss) before income taxes attributable to the Company
Trade	$	13,777	$	393	$	27,632	$	(9,591)
Ethanol	23,531		868		26,457		(23,108)
Plant Nutrient	23,995		19,407		32,518		18,215
Rail	3,064		2,606		7,955		3,613
Other	(10,226)		(5,035)		(19,569)		(10,015)
Income (loss) before income taxes attributable to the Company	54,141		18,239		74,993		(20,886)
Income (loss) attributable to noncontrolling interests	2,625		(10,407)		780		(23,856)
Income (loss) before income taxes	$	56,766	$	7,832	$	75,773	$	(44,742)

13. Commitments and Contingencies

Litigation activities

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.

Specifically, the Company is party to a non-regulatory litigation claim, which is in response to penalties and fines paid to regulatory entities by a previously unconsolidated subsidiary in 2018 for the settlement of matters which focused on certain trading activity. While the Company believes it has meritorious defenses against the suit, the ultimate resolution of the matter could result in a loss in excess of the amount accrued. Given the preliminary status of the claim, the Company does not believe the excess, net of the acquisition-related indemnity, is determinable.

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

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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. Such factors include, but are not limited to, the effects on our business from the COVID-19 pandemic and the pace of recovery from the pandemic, economic and political conditions, globally and in the markets we serve, fluctuations in cost and availability of commodities, weather and agricultural conditions, governmental regulations, the effectiveness of our internal control over financial reporting and the unpredictability of existing and possible future litigation. However, it is not possible to predict or identify all such factors. 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, 2020 (“2020 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 management believes 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 2020 Form 10-K, have not materially changed through the second quarter of 2021.

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 and aligns with the management structure.

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.

The Company has considered the potential impact of the book value of the Company’s total shareholders’ equity exceeding the Company’s market capitalization at various points during the year for impairment indicators. The Company continues to believe that the share price is not an accurate reflection of its current value. The long-term outlook remains positive for agricultural commodities due to market volatility driven by scarcity of supply and strong demand. Management believes that the market’s impact on the Company’s equity value does not accurately reflect the impact of these external factors on the Company. As a result of prior period tests, reviews of current operating results and other relevant market factors, management ultimately concluded that, while the Company's shareholders equity exceeded the market capitalization for certain portions of the period, that no impairment trigger existed as of June 30, 2021. However, adverse market conditions or alternative management decisions on operations may result in future impairment considerations.

Trade

The Trade Group’s second quarter results improved substantially over the prior year as the Group saw the benefits of a demand-driven agriculture rally. Commodity price volatility and market dislocations created merchandising opportunities for the Group to be well positioned and execute on many commodities in both the domestic and export markets. This demand driven rally has created an inversion in the futures market for the majority of the agricultural commodities stored by the Group's asset business. However, traditional space income through the old crop carryout has been accelerated and exceeded by strong elevation margins and merchandising results. The Group’s propane business added significant volume both through a new terminal location and displacement opportunities. Finally, the business continued to benefit from prior year reorganization synergies and other cost-cutting efforts.

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Agricultural inventories on hand at June 30, 2021 were 85.8 million bushels, of which 1.2 million bushels were stored for others. These amounts compare to 74.4 million bushels on hand at June 30, 2020, of which 1.7 million bushels were stored for others. Total Trade storage space capacity, including temporary pile storage, was approximately 202 million bushels at June 30, 2021 compared to 201 million bushels at June 30, 2020.

We expect continued merchandising opportunities into harvest as scarcity of supply is impacting overall prices. Crop conditions in the majority of the Group's draw area are excellent and the business is preparing for a large harvest. As the volume of grain in store is expected to remain at levels below recent years for some time, high prices and strong elevation margins are expected to continue into 2022.

Ethanol

The Ethanol Group's second quarter results were profitable, and a substantial improvement compared to the prior year. The Group's prior year results were significantly impacted by COVID-19 as negative crush margins and weak demand plagued the ethanol industry. The 2021 results reflect a considerable improvement in crush margins, overall ethanol demand and higher ethanol trading results. The Group also benefited from increased co-product values, including high protein and traditional DDG products, as well as corn and other vegetable oils.

Spot ethanol crush margins have continued to improve from the prior year and higher corn and soybean meal prices continue to support feed product values. While there is a level of uncertainty that persists regarding a tighter corn balance sheet and how quickly the ethanol industry as a whole will recover from COVID-19, the group has observed rebounding driving demand, strong coproduct margins and continued trading opportunities.

Ethanol and related co-products volumes for the three and six months ended June 30, 2021 and 2020 were as follows:


	Three months ended June 30,		Six months ended June 30,
(in thousands)	2021	2020	2021	2020
Ethanol (gallons shipped)	186,396	119,528	358,608	266,873
E-85 (gallons shipped)	11,914	4,396	19,805	13,489
Corn oil (pounds shipped)	56,760	20,968	104,708	50,262
DDG (tons shipped)*	454	334	931	964

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

Plant Nutrient

The Plant Nutrient Group's second quarter results were considerably improved compared to the prior year period. The improvement was largely driven by improved margins in the Ag Supply Chain and Specialty Liquids product lines and reflect demand from favorable spring weather, strong grower income and well-positioned fertilizer inventory. Engineered Granules maintained strong demand but contended against rising input costs and a tight labor market. The group's outlook is positive, anticipating continued higher fertilizer prices and strong demand into the fall application season.

Storage capacity at our Ag Supply Chain and Specialty Liquids facilities, including leased storage, was approximately 463 thousand tons for dry nutrients and approximately 509 thousand tons for liquid nutrients at June 30, 2021, compared to approximately 481 thousand tons for dry nutrients and approximately 510 thousand tons for liquid nutrients at June 30, 2020.

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Tons of product sold for the three and six months ended June 30, 2021 and 2020 were as follows:


	Three months ended June 30,		Six months ended June 30,
(in thousands)	2021	2020	2021	2020
Ag Supply Chain	661	690	1,008	904
Specialty Liquids	133	121	233	196
Engineered Granules	165	151	323	273
Total tons	959	962	1,564	1,373

In the table above, Ag Supply Chain represents facilities principally engaged in the wholesale distribution and retail sale and application of primary agricultural nutrients such as bulk nitrogen, phosphorus, and potassium. Specialty Liquid locations produce and sell a variety of low-salt liquid starter fertilizers, micronutrients for agricultural use, and specialty products for use in various industrial processes. Engineered Granules facilities primarily manufacture granulated dry products for use in specialty turf and agricultural applications and a variety of corncob-based products.

Rail

Rail results increased driven by the opportunistic sale of older railcars due to favorable scrap prices. The leasing business improved due to lower maintenance expenses and bad debt recoveries despite slightly decreased average lease rates. Average utilization rates increased from 88.3 percent in the second quarter of 2020 to 89.7 percent in the second quarter of 2021. Rail assets under management (owned, leased or managed for financial institutions in non-recourse arrangements) at June 30, 2021 were 21.8 thousand compared to 24.0 thousand at June 30, 2020.

While the North American railcar industry is showing signs of a slow recovery, lease rates are expected to stay relatively flat for much of the year.

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 and other elimination and consolidation adjustments.

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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 12, Segment Information.

Comparison of the three months ended June 30, 2021 with the three months ended June 30, 2020 including a reconciliation of GAAP to non-GAAP measures:


	Three months ended June 30, 2021
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Other		Total
Sales and merchandising revenues	$	2,297,869	$	616,527	$	321,409	$	37,921	$	—	$	3,273,726
Cost of sales and merchandising revenues	2,220,038		581,811		270,549		27,284		—		3,099,682
Gross profit	77,831		34,716		50,860		10,637		—		174,044
Operating, administrative and general expenses	61,514		6,577		26,568		4,416		10,901		109,976
Interest expense (income), net	7,452		2,021		1,146		3,394		(559)		13,454
Equity in earnings of affiliates, net	845		—		—		—		—		845
Other income, net	4,067		38		849		237		116		5,307
Income (loss) before income taxes	$	13,777	$	26,156	$	23,995	$	3,064	$	(10,226)	$	56,766
Income (loss) before income taxes attributable to the noncontrolling interests	—		2,625		—		—		—		2,625
Non-GAAP Income (loss) before income taxes attributable to the Company	$	13,777	$	23,531	$	23,995	$	3,064	$	(10,226)	$	54,141


	Three months ended June 30, 2020
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Other		Total
Sales and merchandising revenues	$	1,351,168	$	223,745	$	279,825	$	35,442	$	—	$	1,890,180
Cost of sales and merchandising revenues	1,291,786		226,344		241,060		24,724		—		1,783,914
Gross profit	59,382		(2,599)		38,765		10,718		—		106,266
Operating, administrative and general expenses	54,998		5,506		18,281		5,184		6,167		90,136
Interest expense (income), net	5,056		1,900		1,463		3,833		(425)		11,827
Equity in earnings (losses) of affiliates, net	79		—		—		—		—		79
Other income (expense), net	986		466		386		905		707		3,450
Income (loss) before income taxes	$	393	$	(9,539)	$	19,407	$	2,606	$	(5,035)	$	7,832
Income (loss) before income taxes attributable to the noncontrolling interests	—		(10,407)		—		—		—		(10,407)
Non-GAAP Income (loss) before income taxes attributable to the Company	$	393	$	868	$	19,407	$	2,606	$	(5,035)	$	18,239

The Company uses Income (loss) before income taxes attributable to the Company, a non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. Management believes that Income (loss) before income taxes attributable to the Company is a useful measure of the Company’s performance because it provides investors additional information about the Company's operations allowing evaluation of underlying business performance and period-to-period comparability. This measure is not intended to replace or be alternatives to Income (loss) before income taxes, the most directly comparable amounts reported under GAAP.

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Trade

Operating results for the Trade Group increased by $13.4 million compared to the results of the same period last year. Sales and merchandising revenues increased by $946.7 million and cost of sales and merchandising revenues increased by $928.3 million for a favorable net gross profit impact of $18.4 million. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase in gross profit was primarily driven by improved merchandising results as weather and export demand created volatility that allowed traders to identify arbitrage opportunities from geographical dislocations. This increase was partially offset by a decrease in the Group's traditional assets, however, as inverted futures markets in several commodities provided less space income, replacing and accelerating the income with merchandising opportunities noted above.

Operating, administrative and general expenses increased by $6.5 million. The increase from the prior year is primarily related to higher incentive compensation costs from improved operating results and other professional service fees.

Interest expense increased by $2.4 million due to higher group borrowings on the Company's short-term line of credit compared to the prior year.

Other income increased by $3.1 million from prior year largely driven by a gain on the sale of a grain location in the current year.

Ethanol

Operating results for the Ethanol Group increased by $22.7 million from the same period last year. Sales and merchandising revenues increased by $392.8 million and cost of sales and merchandising revenues increased by $355.5 million compared to prior year results. As a result gross profit increased by $37.3 million compared to 2020 results. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase to gross profit in the current period results reflect improved ethanol margins, higher coproduct sales from DDGs and corn oil and strong merchandising revenues. The prior year results were significantly impacted by COVID-19.

Operating, administrative and general expenses increased by $1.1 million from the increase in labor and incentive compensation costs from increased production and improved operating results, respectively.

Plant Nutrient

Operating results for the Plant Nutrient Group increased by $4.6 million compared to the same period in the prior year. Sales and merchandising revenues increased by $41.6 million and cost of sales and merchandising revenues increased by $29.5 million resulting in a $12.1 million increase in gross profit. The increase in gross profit was driven by improved margins across the Ag Supply Chain and Specialty Liquids product lines and reflects higher spring demand, strong grower income and well positioned fertilizer inventory.

Operating, administrative and general expenses increased by $8.3 million due to higher incentive compensation costs from and improved operating results.

Interest expense decreased by $0.3 million due to lower interest rates.

Rail

Operating results increased by $0.5 million from the same period last year. Sales and merchandising revenues increased by $2.5 million from prior year. This was driven by a $4.9 million increase in car sale revenues and a $0.6 million increase in repair revenues that was partially offset by a $3.0 million decrease in leasing revenue. Cost of sales and merchandising revenues increased by $2.6 million compared to the prior year due to increased car sale revenues from the prior year. As a result, gross profit decreased by $0.1 million compared to the same period last year.

Operating, administrative and general expenses decreased by $0.8 million due to a decrease in bad debt expense as compared to the prior year. This was partially offset by higher incentive compensation from improved operating results.

Interest expense decreased by $0.4 million due to lower interest rates.

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Other

Operating results for the second quarter declined by $5.2 million compared to the same period in 2020. The increase in operating losses was primarily driven by higher operating, administrative and general expenses due to increased incentive-based compensation as a result of improved company-wide performance year over year and higher professional services expenses.

Income Taxes

For the three months ended June 30, 2021, the Company recorded an income tax expense of $10.6 million at an effective rate of 18.7%. For the three months ended June 30, 2020, the Company recorded an income tax benefit of $12.2 million at an effective tax rate of 155.8%. The change in effective tax rate for the three months ended June 30, 2021 as compared to the same period last year was primarily attributed to the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The prior year also reflects the benefit of net operating loss carryback tax savings opportunities as provided by the CARES Act.

Comparison of the six months ended June 30, 2021 with the six months ended June 30, 2020 including a reconciliation of GAAP to non-GAAP measures:


	Six months ended June 30, 2021
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Other		Total
Sales and merchandising revenues	$	4,280,377	$	1,059,486	$	490,661	$	78,931	$	—	$	5,909,455
Cost of sales and merchandising revenues	4,129,989		1,016,287		407,400		59,023		—		5,612,699
Gross profit	150,388		43,199		83,261		19,908		—		296,756
Operating, administrative and general expenses	118,445		13,233		49,967		7,290		20,913		209,848
Interest expense (income), net	14,503		4,094		2,212		6,574		(760)		26,623
Equity in earnings (losses) of affiliates, net	2,639		—		—		—		—		2,639
Other income (expense), net	7,553		1,365		1,436		1,911		584		12,849
Income (loss) before income taxes	$	27,632	$	27,237	$	32,518	$	7,955	$	(19,569)	$	75,773
Income (loss) before income taxes attributable to the noncontrolling interests	—		780		—		—		—		780
Non-GAAP Income (loss) before income taxes attributable to the Company	$	27,632	$	26,457	$	32,518	$	7,955	$	(19,569)	$	74,993


	Six months ended June 30, 2020
(in thousands)	Trade		Ethanol		Plant Nutrient		Rail		Other		Total
Sales and merchandising revenues	$	2,729,209	$	536,784	$	404,738	$	72,555	$	—	$	3,743,286
Cost of sales and merchandising revenues	2,607,361		568,782		345,609		52,138		—		3,573,890
Gross profit	121,848		(31,998)		59,129		20,417		—		169,396
Operating, administrative and general expenses	123,153		11,621		38,022		10,443		11,957		195,196
Interest expense (income), net	12,245		4,257		3,248		8,316		(652)		27,414
Equity in earnings (losses) of affiliates, net	209		—		—		—		—		209
Other income (expense), net	3,750		912		356		1,955		1,290		8,263
Income (loss) before income taxes	$	(9,591)	$	(46,964)	$	18,215	$	3,613	$	(10,015)	$	(44,742)
Income (loss) before income taxes attributable to the noncontrolling interests	—		(23,856)		—		—		—		(23,856)
Non-GAAP Income (loss) before income taxes attributable to the Company	$	(9,591)	$	(23,108)	$	18,215	$	3,613	$	(10,015)	$	(20,886)

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Trade

Operating results for the Trade Group increased by $37.2 million compared to the results of the same period last year. Sales and merchandising revenues increased by $1,551.2 million and cost of sales and merchandising revenues increased by $1,522.6 million for an increased gross profit impact of $28.5 million. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase in gross profit was primarily driven by improved merchandising results as weather and export demand created volatility that allowed traders to identify arbitrage opportunities from geographical dislocations. This increase was partially offset by a decrease in the Group's traditional assets, however, as inverted futures markets in several commodities provided less space income, replacing and accelerating the income with merchandising opportunities noted above.

Operating, administrative and general expenses decreased by $4.7 million. The decrease from the prior year is primarily related to the Company's cost saving initiatives, much of which is headcount reduction, both from acquisition integration and in response to the COVID-19 pandemic. The decrease was partially offset by higher incentive compensation costs from improved operating results.

Interest expense increased by $2.3 million due to higher group borrowings on the Company's short-term line of credit compared to the prior year.

Ethanol

Operating results for the Ethanol Group increased by $49.6 million from the same period last year. Sales and merchandising revenues increased by $522.7 million and cost of sales and merchandising revenues increased by $447.5 million compared to prior year. As a result, gross profit increased by $75.2 million compared to prior year. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase to gross profit in the current period results reflect significantly improved crush margins, higher coproduct sales from DDGs and corn oil and strong merchandising revenues. The prior year results were significantly impacted by COVID-19 and the group recorded a $10.9 million inventory write down and a $9.6 million mark to market loss.

Operating, administrative and general expenses increased by $1.6 million primarily due to higher labor and incentive compensation costs from increased production and improved operating results, respectively.

Plant Nutrient

Operating results for the Plant Nutrient Group increased by $14.3 million compared to the same period in the prior year. Sales and merchandising revenues increased $85.9 million and cost of sales and merchandising revenues increased by $61.8 million resulting in increased gross profit of $24.1 million. Gross profit improved year over year due to increases in volumes and margins across the breadth of product lines and reflects higher demand, strong grower income and well positioned fertilizer inventory.

Operating, administrative and general expenses increased by $11.9 million due to increased incentive compensation from improved operating results, and other variable expenses supporting additional volume in the current year.

Interest expense decreased by $1.0 million from lower interest rates compared to the prior year.

Rail

Operating results increased by $4.3 million from the same period last year. Sales and merchandising revenues increased by $6.4 million. This was driven by a $11.5 million increase in car sale revenues and a $1.8 million increase in repair revenues that was partially offset by a $6.9 million decrease in leasing revenue. Cost of sales and merchandising increased by $6.9 million compared to the prior year driven by the book value of cars that were sold in the quarter. As a result, gross profit decreased by $0.5 million compared to the same period last year.

Operating, administrative and general expenses decreased by $3.2 million driven by a $1.6 million recovery of previously written off bad debt and overall lower expenses in the period.

Interest expense decreased by $1.7 million from lower borrowings and interest rates compared to the prior year.

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Other

Operating results declined by $9.6 million from the same period last year. The increase in operating losses was primarily driven by increased incentive-based compensation in operating, administrative and general expenses due to improved company-wide performance year over year and higher professional services expenses.

Income Taxes

For the six months ended June 30, 2021, the Company recorded an income tax expense of $16.4 million at an effective rate of 21.6%. For the six months ended June 30, 2020, the Company recorded an income tax benefit of $13.7 million at an effective tax rate of 30.5%. The change in effective tax rate for the six months ended June 30, 2021 as compared to the same period last year primarily attributed improved operating results in the current year, including additional nondeductible compensation and increased foreign tax expense, as well as the treatment of mark-to-market activity on certain contracts in the Ethanol segment.

Liquidity and Capital Resources

Working Capital

At June 30, 2021, the Company had working capital of $543.7 million. The following table presents changes in the components of current assets and current liabilities:


(in thousands)	June 30, 2021		June 30, 2020		Variance
Current Assets:
Cash and cash equivalents	$	27,538	$	30,011	$	(2,473)
Accounts receivable, net	721,575		537,011		184,564
Inventories	912,299		616,323		295,976
Commodity derivative assets – current	507,148		112,089		395,059
Other current assets	65,740		102,755		(37,015)
Total current assets	$	2,234,300	$	1,398,189	$	836,111
Current Liabilities:
Short-term debt	757,271		96,071		661,200
Trade and other payables	547,169		503,892		43,277
Customer prepayments and deferred revenue	58,155		45,734		12,421
Commodity derivative liabilities – current	90,366		65,186		25,180
Current maturities of long-term debt	56,582		68,477		(11,895)
Accrued expenses and other current liabilities	181,015		147,422		33,593
Total current liabilities	$	1,690,558	$	926,782	$	763,776
Working Capital	$	543,742	$	471,407	$	72,335

Current assets as of June 30, 2021 increased $836.1 million in comparison to those as of June 30, 2020. This increase was noted in all areas except for cash and cash equivalents and other current assets. The increases in accounts receivable, current commodity derivative assets and inventory balances can largely be attributable to the significant increases in the prices of agricultural commodities that the Company transacts in the ordinary course of business. The decrease in other current assets is attributable to the receipt of federal income tax refunds as a result of the CARES Act in 2020. See also the discussion below on additional sources and uses of cash for an understanding of the increase in cash from prior year.

Current liabilities increased $763.8 million compared to the prior year primarily due to increases in short-term debt and trade and other payables. The increase in short-term debt is the result of higher working capital needs and driven by significant increases in the prices of agricultural commodities. The increase in trade and other payables is also the result of increasing agricultural commodity prices. Short-term borrowings, while typically at a seasonal high in the spring, are further supporting an unusual price run-up in our core commodities. As we liquidate these commodities in advance of harvest, we expect a reduction to the level of short-term borrowing. The increase in current liabilities was slightly offset by reductions in current maturities of long-term debt.

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Sources and Uses of Cash


	Six Months Ended
(in thousands)	June 30, 2021		June 30, 2020
Net cash (used in) provided by operating activities	$	(245,494)	$	145,511
Net cash used in investing activities	(23,474)		(66,002)
Net cash provided by (used in) financing activities	267,550		(105,068)

Operating Activities

Our operating activities used cash of $245.5 million and provided cash of $145.5 million in the first six months of 2021 and 2020, respectively. The increase in cash used was primarily due to a result in the change of working capital, as discussed above, driven by significant increases in agricultural commodity prices. However, when you remove the impact from changes in working capital, cash provided by operating activities was much stronger than the prior period due to favorable operating results.

Investing Activities

Investing activities used cash of $23.5 million through the first six months of 2021 compared to cash used of $66.0 million in the prior year. The decrease from the prior year was a result of higher proceeds from sales of assets and railcars, fewer purchased railcars and the continued strategic use of capital spending to enhance overall liquidity and cash management.

We expect to invest approximately $100 million in property, plant and equipment in 2021; approximately 60% of which will be to maintain facilities.

Financing Activities

Financing activities provided cash of $267.6 million and $105.1 million for the six months ended June 30, 2021 and 2020, respectively. This change from the prior year was largely due to a significant increase in short term borrowings to cover working capital needs as the prices of agricultural commodities continue to rise.

The Company is party to borrowing arrangements with a syndicate of banks that provide a total of $1,404.6 million in borrowings. Of the total capacity, $404.6 million is non-recourse to the Company. As of June 30, 2021, the Company had $1,173.5 million available for borrowing with $237.2 million of that total being non-recourse to the Company.

The Company paid $11.7 million in dividends in the first six months of 2021 compared to $11.5 million in the prior year. The Company paid $0.175 per common share for the dividends paid in January and April of 2021 and 2020. On June 25, 2021, the Company declared a cash dividend of $0.175 per common share payable on July 22, 2021 to shareholders of record on July 6, 2021.

Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. The Company is in compliance with all such covenants as of June 30, 2021. 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 the Company is 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. In addition, periods of high grain prices and/or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, the Company could receive a return of cash.

Management believes our sources of liquidity will be adequate to fund our operations, capital expenditures and service our indebtedness.

At June 30, 2021, the Company had standby letters of credit outstanding of $25.5 million.

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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, 2020. There were no material changes in market risk, specifically commodity and interest rate risk during the six months ended June 30, 2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of June 30, 2021 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the second quarter of 2021, identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

The Company is subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Except as described in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 13, “Commitments and Contingencies,” in the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims.

The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.

Item 1A. Risk Factors

The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the 2020 Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. There have been no material changes to the Company’s risk factors since the 2020 Form 10-K.

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 2021	12,760	$	27.38	—	—
May 2021	—	—		—	—
June 2021	177	30.86		—	—



Total	12,937	$	27.43	—	—

(1) During the three months ended June 30, 2021, 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

The Company is committed to protecting the occupational health and well-being of each of our employees. Safety is one of our core values and as an organization 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. The Company has implemented employee training that is geared toward maintaining a high level of awareness and knowledge of safety and health issues in the work environment. Management believes that through these policies the Company has 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 mine locations that are covered under the scope of the Dodd-Frank Act are included in Exhibit 95.1 of Item 6. Exhibits of this Quarterly Report on Form 10-Q.

The Andersons, Inc. | Q2 2021 Form 10-Q | 33

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Item 6. Exhibits



Exhibit Number						Description

10.1						Third Amendment to Credit Agreement

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

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

32.1**						Certifications Pursuant to 18 U.S.C. Section 1350

95.1*						Mine Safety Disclosure

101**						Inline XBRL Document Set for the Condensed Consolidated Financial Statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.

104**						Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.

* Filed herewith
** Furnished herewith

Items 3 and 5 are not applicable and have been omitted

The Andersons, Inc. | Q2 2021 Form 10-Q | 34

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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.

Date: August 4, 2021						/s/ Patrick E. Bowe
						Patrick E. Bowe
						Chief Executive Officer

Date: August 4, 2021						/s/ Brian A. Valentine
						Brian A. Valentine
						Executive Vice President and Chief Financial Officer

The Andersons, Inc. | Q2 2021 Form 10-Q | 35

The Andersons, Inc. - 10-Q quarterly report FY2021 Q2

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