ANDE 2013.06.30 10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
 
¨
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.)
480 W. Dussel Drive, Maumee, Ohio
 
43537
(Address of principal executive offices)
 
(Zip Code)
(419) 893-5050
(Telephone Number)
 
(Former name, former address and former fiscal year, if changed since last report.)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
ý
Accelerated Filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The registrant had approximately 18.7 million common shares outstanding, no par value, at July 31, 2013.

Table of Contents

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


2
Table of Contents


Part I. Financial Information


Item 1. Financial Statements


The Andersons, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)(In thousands)
 
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
75,920

 
$
138,218

 
$
23,930

Restricted cash
872

 
398

 
5,644

Accounts receivable, net
216,432

 
208,877

 
205,046

Inventories (Note 2)
444,523

 
776,677

 
597,091

Commodity derivative assets – current
121,789

 
103,105

 
122,010

Deferred income taxes
2,797

 
15,862

 
18,784

Other current assets
44,936

 
54,016

 
38,535

Total current assets
907,269

 
1,297,153

 
1,011,040

Other assets:
 
 
 
 
 
Commodity derivative assets – noncurrent
87

 
1,906

 
4,844

Goodwill
54,387

 
51,418

 
19,226

Other assets, net
49,394

 
53,711

 
50,814

Equity method investments
195,241

 
190,908

 
189,610

 
299,109

 
297,943

 
264,494

Railcar assets leased to others, net (Note 3)
242,887

 
228,330

 
252,965

Property, plant and equipment, net (Note 3)
371,716

 
358,878

 
266,275

Total assets
$
1,820,981

 
$
2,182,304

 
$
1,794,774


3
Table of Contents

The Andersons, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)(In thousands)
 
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Borrowings under short-term line of credit
$
50,000

 
$
24,219

 
$
309,608

Accounts payable for grain
178,017

 
582,653

 
129,979

Other accounts payable
183,971

 
165,201

 
148,497

Customer prepayments and deferred revenue
25,621

 
105,410

 
55,912

Commodity derivative liabilities – current
58,183

 
33,277

 
29,764

Accrued expenses and other current liabilities
57,456

 
66,902

 
51,283

Current maturities of long-term debt (Note 10)
45,096

 
15,145

 
29,647

Total current liabilities
598,344

 
992,807

 
754,690

Other long-term liabilities
15,634

 
18,406

 
11,546

Commodity derivative liabilities – noncurrent
5,863

 
1,134

 
454

Employee benefit plan obligations
50,754

 
53,131

 
50,437

Long-term debt, less current maturities (Note 10)
409,020

 
427,243

 
317,648

Deferred income taxes
87,486

 
78,138

 
70,806

Total liabilities
1,167,101

 
1,570,859

 
1,205,581

Commitments and contingencies (Note 11)

 

 

Shareholders’ equity:
 
 
 
 
 
Common shares, without par value (42,000 shares authorized; 19,198 shares issued)
96

 
96

 
96

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

 
—

 
—

Additional paid-in-capital
182,455

 
181,627

 
180,535

Treasury shares at cost (469, 554 and 557 shares at 6/30/13, 12/31/12 and 6/30/12, respectively)
(11,448
)
 
(12,559
)
 
(12,519
)
Accumulated other comprehensive loss
(42,025
)
 
(45,379
)
 
(42,998
)
Retained earnings
506,691

 
470,628

 
444,539

Total shareholders’ equity of The Andersons, Inc.
635,769

 
594,413

 
569,653

Noncontrolling interests
18,111

 
17,032

 
19,540

Total equity
653,880

 
611,445

 
589,193

Total liabilities and equity
$
1,820,981

 
$
2,182,304

 
$
1,794,774

See Notes to Condensed Consolidated Financial Statements


4
Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Income
(Unaudited)(In thousands, except per share data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Sales and merchandising revenues
$
1,566,964

 
$
1,315,834

 
$
2,838,934

 
$
2,452,967

Cost of sales and merchandising revenues
1,463,735

 
1,213,184

 
2,656,432

 
2,264,447

Gross profit
103,229

 
102,650

 
182,502

 
188,520

Operating, administrative and general expenses
61,464

 
59,210

 
123,472

 
119,310

Interest expense
4,855

 
5,380

 
11,259

 
10,710

Other income:
 
 
 
 
 
 
 
Equity in earnings of affiliates
10,010

 
5,096

 
17,814

 
9,379

Other income, net
1,292

 
2,671

 
4,018

 
5,917

Income before income taxes
48,212

 
45,827

 
69,603

 
73,796

Income tax provision
17,480

 
17,356

 
26,559

 
27,597

Net income
30,732

 
28,471

 
43,044

 
46,199

Net income (loss) attributable to the noncontrolling interests
1,193

 
(728
)
 
927

 
(1,407
)
Net income attributable to The Andersons, Inc.
$
29,539

 
$
29,199

 
$
42,117

 
$
47,606

Per common share:
 
 
 
 
 
 
 
Basic earnings attributable to The Andersons, Inc. common shareholders
$
1.58

 
$
1.57

 
$
2.25

 
$
2.56

Diluted earnings attributable to The Andersons, Inc. common shareholders
$
1.57

 
$
1.56

 
$
2.24

 
$
2.54

Dividends paid
$
0.1600

 
$
0.1500

 
$
0.3200

 
$
0.3000

See Notes to Condensed Consolidated Financial Statements


5
Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)(In thousands)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
30,732

 
$
28,471

 
$
43,044

 
$
46,199

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Increase (decrease) in estimated fair value of investment in debt securities (net of income tax of $0, $1,126, ($187) and $1,126)
—

 
(1,884
)
 
303

 
(1,884
)
Change in unrecognized actuarial loss and prior service cost (net of income tax of $693, $895, $925 and $1,135 - Note 1)
1,144

 
1,497

 
2,913

 
1,898

Cash flow hedge activity (net of income tax of $65, $8, $161 and $47)
108

 
14

 
138

 
78

Other comprehensive income (loss)
1,252

 
(373
)
 
3,354

 
92

Comprehensive income
31,984

 
28,098

 
46,398

 
46,291

Comprehensive income (loss) attributable to the noncontrolling interests
1,193

 
(728
)
 
927

 
(1,407
)
Comprehensive income attributable to The Andersons, Inc.
$
30,791

 
$
28,826

 
$
45,471

 
$
47,698

See Notes to Condensed Consolidated Financial Statements


6
Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)


 
Six Months Ended
June 30,
 
2013
 
2012
Operating Activities
 
 
 
Net income
$
43,044

 
$
46,199

Adjustments to reconcile net income to cash used in operating activities:
 
 
 
Depreciation and amortization
28,184

 
22,500

Bad debt expense
610

 
493

Cash distributions (less than) in excess of income of unconsolidated affiliates
(4,333
)
 
9,451

Gains and amortization of deferred gains on sales of railcars and related leases
(14,616
)
 
(8,674
)
Excess tax benefit from share-based payment arrangement
(278
)
 
(35
)
Deferred income taxes
22,525

 
4,399

Stock based compensation expense
1,435

 
2,875

Other
714

 
62

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(7,517
)
 
(36,277
)
Inventories
331,596

 
176,766

Commodity derivatives
12,770

 
(27,790
)
Other assets
7,017

 
1,624

Accounts payable for grain
(404,636
)
 
(261,925
)
Other accounts payable and accrued expenses
(76,184
)
 
(63,758
)
Net cash used in operating activities
(59,669
)
 
(134,090
)
Investing Activities
 
 
 
Purchase of investments
—

 
(19,996
)
Proceeds from redemption of investment
—

 
19,998

Acquisition of businesses, net of cash acquired
(3,345
)
 
(93,112
)
Purchases of railcars
(56,899
)
 
(77,028
)
Proceeds from sale of railcars
53,243

 
16,057

Purchases of property, plant and equipment
(18,549
)
 
(38,171
)
Proceeds from sale of property, plant and equipment
137

 
725

Proceeds from minority investor
—

 
6,100

Change in restricted cash
(474
)
 
13,007

Net cash used in investing activities
(25,887
)
 
(172,420
)
Financing Activities
 
 
 
Net change in short-term borrowings
25,781

 
238,108

Proceeds from issuance of long-term debt
36,391

 
106,878

Payments of long-term debt
(34,708
)
 
(30,675
)
Proceeds from sale of treasury shares to employees and directors
1,547

 
1,350

Payments of debt issuance costs
(46
)
 
(72
)
Dividends paid
(5,985
)
 
(5,574
)
Excess tax benefit from share-based payment arrangement
278

 
35

Net cash provided by financing activities
23,258

 
310,050

Increase (decrease) in cash and cash equivalents
(62,298
)
 
3,540

Cash and cash equivalents at beginning of period
138,218

 
20,390

Cash and cash equivalents at end of period
$
75,920

 
$
23,930


7
Table of Contents

 
Six Months Ended
 June 30,
 
2013
 
2012
Supplemental disclosure of cash flow information
 
 
 
Capitalized software costs incurred but not yet paid
$
3,839

 
$
—

Purchase of capitalized software through seller-financing
$
9,393

 
$
—


See Notes to Condensed Consolidated Financial Statements

8
Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Equity
(Unaudited)(In thousands, except per share data)
 
Common
Shares
 
Additional
Paid-in
Capital
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Noncontrolling
Interests
 
Total
Balance at December 31, 2011
$
96

 
$
179,463

 
$
(14,997
)
 
$
(43,090
)
 
$
402,523

 
$
14,847

 
$
538,842

Net income (loss)
 
 
 
 
 
 
 
 
47,606

 
(1,407
)
 
46,199

Other comprehensive income
 
 
 
 
 
 
92

 
 
 
 
 
92

Proceeds received from minority investor
 
 
 
 
 
 
 
 
 
 
6,100

 
6,100

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $675 (140 shares)
 
 
1,072

 
2,478

 
 
 
 
 
 
 
3,550

Dividends declared ($0.30 per common share)
 
 
 
 
 
 
 
 
(5,590
)
 
 
 
(5,590
)
Balance at June 30, 2012
$
96

 
$
180,535

 
$
(12,519
)
 
$
(42,998
)
 
$
444,539

 
$
19,540

 
$
589,193

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
96

 
$
181,627

 
$
(12,559
)
 
$
(45,379
)
 
$
470,628

 
$
17,032

 
$
611,445

Net income
 
 
 
 
 
 
 
 
42,117

 
927

 
43,044

Other comprehensive income
 
 
 
 
 
 
3,354

 
 
 
 
 
3,354

Noncontrolling interest
 
 
 
 
 
 
 
 
 
 
152

 
152

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $1,099 (85 shares)
 
 
773

 
1,111

 
 
 
 
 
 
 
1,884

Dividends declared ($0.32 per common share)
 
 
 
 
 
 
 
 
(5,999
)
 
 
 
(5,999
)
Performance share unit dividend equivalents
 
 
55

 
 
 
 
 
(55
)
 
 
 
—

Balance at June 30, 2013
$
96

 
$
182,455

 
$
(11,448
)
 
$
(42,025
)
 
$
506,691

 
$
18,111

 
$
653,880

See Notes to Condensed Consolidated Financial Statements


9
Table of Contents

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

1. Basis of Presentation and Consolidation
These Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All significant 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 recurring items, considered necessary for a fair statement of the results of operations for the periods indicated, have been made. Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013.
The year-end Condensed Consolidated Balance Sheet data at December 31, 2012 was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. A Condensed Consolidated Balance Sheet as of June 30, 2012 has been included as the Company operates in several seasonal industries.
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, 2012 (the “2012 Form 10-K”).
Reclassifications Out of Other Comprehensive Income
In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, information about reclassification adjustments from accumulated other comprehensive income to net income in the current periods are presented below.
Changes in Accumulated Other Comprehensive Loss by Component (a)
 
 
 
For the Three Months Ended June 30, 2013
 
For the Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Losses on Cash Flow Hedges
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
 
Losses on Cash Flow Hedges
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
Beginning Balance
 
$
(872
)
 
$
2,872

 
$
(45,277
)
 
$
(43,277
)
 
$
(902
)
 
$
2,569

 
$
(47,046
)
 
$
(45,379
)
 
Other comprehensive income before reclassifications
 
108

 
—

 
1,229

 
1,337

 
138

 
303

 
3,083

 
3,524

 
Amounts reclassified from accumulated other comprehensive income
 
—

 
—

 
(85
)
 
(85
)
 
—

 
—

 
(170
)
 
(170
)
Net current-period other comprehensive income
 
108

 
—

 
1,144

 
1,252

 
138

 
303

 
2,913

 
3,354

Ending balance
 
$
(764
)
 
$
2,872

 
$
(44,133
)
 
$
(42,025
)
 
$
(764
)
 
$
2,872

 
$
(44,133
)
 
$
(42,025
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

10
Table of Contents

Reclassifications Out of Accumulated Other Comprehensive Income (a)
 
 
For the Three Months Ended June 30, 2013
 
For the Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Affected Line Item in the Statement Where Net Income Is Presented
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Affected Line Item in the Statement Where Net Income Is Presented
Defined Benefit Plan Items
 
 
 
 
 
 
 
 
     Amortization of prior-service cost
 
$
(136
)
 
(b)
 
$
(272
)
 
(b)
 
 
(136
)
 
Total before tax
 
(272
)
 
Total before tax
 
 
51

 
Tax expense
 
102

 
Tax expense
 
 
$
(85
)
 
Net of tax
 
$
(170
)
 
Net of tax
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(85
)
 
Net of tax
 
$
(170
)
 
Net of tax
 
 
 
 
 
 
 
 
 
(a) Amounts in parentheses indicate debits to profit/loss.
(b) This accumulated other comprehensive income component is included in the computation of net periodic pension cost (see Note 6. Employee Benefit Plans footnote for additional details).


11
Table of Contents

2. Inventories
Major classes of inventories are as follows:
 
(in thousands)
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Grain
$
303,018

 
$
586,983

 
$
465,453

Ethanol and by-products
17,966

 
22,927

 
18,516

Agricultural fertilizer and supplies
71,226

 
100,175

 
57,637

Lawn and garden fertilizer and corncob products
23,434

 
37,292

 
21,714

Retail merchandise
25,389

 
25,368

 
30,685

Railcar repair parts
3,293

 
3,764

 
2,777

Other
197

 
168

 
309

 
$
444,523

 
$
776,677

 
$
597,091



3. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
 
(in thousands)
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Land
$
22,637

 
$
22,258

 
$
19,505

Land improvements and leasehold improvements
65,625

 
63,013

 
52,536

Buildings and storage facilities
224,281

 
214,919

 
172,354

Machinery and equipment
295,723

 
287,896

 
243,216

Software
13,469

 
12,901

 
11,204

Construction in progress
44,146

 
34,965

 
33,613

 
665,881

 
635,952

 
532,428

Less accumulated depreciation and amortization
294,165

 
277,074

 
266,153

 
$
371,716

 
$
358,878

 
$
266,275

Depreciation expense on property, plant and equipment amounted to $18.5 million, $27.4 million and $12.0 million for the year-to-date periods ended June 30, 2013, December 31, 2012, and June 30, 2012, respectively.
Railcars
The components of Railcar assets leased to others are as follows:
 
(in thousands)
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Railcar assets leased to others
$
321,269

 
$
310,614

 
$
332,997

Less accumulated depreciation
78,382

 
82,284

 
80,032

 
$
242,887

 
$
228,330

 
$
252,965

Depreciation expense on railcar assets leased to others amounted to $7.4 million, $15.9 million and $7.8 million for the year-to-date periods ended June 30, 2013, December 31, 2012 and June 30, 2012, respectively.

4. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward grain and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over the counter forward and option contracts with various counterparties. The exchange traded contracts are primarily

12
Table of Contents

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

All of these contracts are considered derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company accounts for its commodity derivatives at estimated fair value, the same method it uses to value its grain inventory. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in 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 futures, options 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 Company nets, by counterparty, its futures and over-the-counter positions against the cash collateral provided or received. 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 Company also nets, by counterparty, the derivative asset and liability positions, for non-exchanged traded futures, options and over-the-counter contracts in the Condensed Consolidated Balance Sheets.
The following table presents at June 30, 2013, December 31, 2012 and June 30, 2012, 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 short-term commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
 
 
June 30, 2013
 
December 31, 2012
 
June 30, 2012
(in thousands)
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
Collateral paid (received)
$
33,364

 
$
—

 
$
(13,772
)
 
$
—

 
$
151,939

 
$
—

Fair value of derivatives
46,329

 
—

 
61,247

 
—

 
(106,629
)
 
—

Balance at end of period
$
79,693

 
$
—

 
$
47,475

 
$
—

 
$
45,310

 
$
—

Certain of our contracts allow the Company to post items other than cash as collateral. Grain inventory posted as collateral on our derivative contracts are recorded in Inventories on the Condensed Consolidated Balance Sheets and the fair value of such inventory was $0.3 million, $7.7 million, and $6.1 million as of June 30, 2013, December 31, 2012, and June 30, 2012, respectively.

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

13
Table of Contents

 
June 30, 2013
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
98,902

 
$
87

 
$
4,133

 
$
62

 
$
103,184

Commodity derivative liabilities
(10,477
)
 
—

 
(62,316
)
 
(5,925
)
 
(78,718
)
Cash collateral
33,364

 
—

 
—

 
—

 
33,364

Balance sheet line item totals
$
121,789

 
$
87

 
$
(58,183
)
 
$
(5,863
)
 
$
57,830


 
December 31, 2012
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
137,119

 
$
2,059

 
$
5,233

 
$
130

 
$
144,541

Commodity derivative liabilities
(20,242
)
 
(153
)
 
(38,510
)
 
(1,264
)
 
(60,169
)
Cash collateral
(13,772
)
 
—

 
—

 
—

 
(13,772
)
Balance sheet line item totals
$
103,105

 
$
1,906

 
$
(33,277
)
 
$
(1,134
)
 
$
70,600


 
June 30, 2012
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
89,552

 
$
4,950

 
$
2,943

 
$
9

 
$
97,454

Commodity derivative liabilities
(119,481
)
 
(106
)
 
(32,707
)
 
(463
)
 
(152,757
)
Cash collateral
151,939

 
—

 
—

 
—

 
151,939

Balance sheet line item totals
$
122,010

 
$
4,844

 
$
(29,764
)
 
$
(454
)
 
$
96,636



The gains included in the Company’s Condensed Consolidated Statements of Income and the line items in which they are located for the three and six months ended June 30, 2013 and 2012 are as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Gains (losses) on commodity derivatives included in sales and merchandising revenues
$
31,068

 
$
(12,900
)
 
$
67,436

 
$
(16,557
)
At June 30, 2013, the Company had the following volume of commodity derivative contracts outstanding (on a gross basis):
 

14
Table of Contents

Commodity
Number of bushels
(in thousands)
 
Number of gallons
(in thousands)
 
Number of pounds
(in thousands)
 
Number of tons
(in thousands)
Non-exchange traded:
 
 
 
 
 
 
 
Corn
196,108

 
—

 
—

 
2

Soybeans
26,244

 
—

 
—

 
—

Wheat
21,205

 
—

 
—

 
—

Oats
12,139

 
—

 
—

 
—

Ethanol
—

 
36,814

 
—

 
—

Corn oil
—

 
—

 
9,726

 
—

Other
28

 
—

 
—

 
98

Subtotal
255,724

 
36,814

 
9,726

 
100

Exchange traded:
 
 
 
 
 
 
 
Corn
105,880

 
—

 
—

 
—

Soybeans
15,610

 
—

 
—

 
—

Wheat
32,050

 
—

 
—

 
—

Oats
4,655

 
—

 
—

 
—

Ethanol
—

 
12,283

 
—

 
—

Other
—

 
—

 
—

 
1

Subtotal
158,195

 
12,283

 
—

 
1

Total
413,919

 
49,097

 
9,726

 
101



15
Table of Contents

5. Earnings Per Share
Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Company’s nonvested restricted stock is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest.

(in thousands except per common share data)
Three months ended
June 30,
 
Six months ended
June 30,
2013
 
2012
 
2013
 
2012
Net income attributable to The Andersons, Inc.
$
29,539

 
$
29,199

 
$
42,117

 
$
47,606

Less: Distributed and undistributed earnings allocated to nonvested restricted stock
101

 
146

 
155

 
179

Earnings available to common shareholders
$
29,438

 
$
29,053

 
$
41,962

 
$
47,427

Earnings per share – basic:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
18,663

 
18,541

 
18,636

 
18,522

Earnings per common share – basic
$
1.58

 
$
1.57

 
$
2.25

 
$
2.56

Earnings per share – diluted:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
18,663

 
18,541

 
18,636

 
18,522

Effect of dilutive awards
117

 
132

 
108

 
166

Weighted average shares outstanding – diluted
18,780

 
18,673

 
18,744

 
18,688

Earnings per common share – diluted
$
1.57

 
$
1.56

 
$
2.24

 
$
2.54

There were no antidilutive stock-based awards outstanding at June 30, 2013 or 2012.


6. Employee Benefit Plans
Included as charges against income for the three and six months ended June 30, 2013 and 2012 are the following amounts for pension and postretirement benefit plans maintained by the Company:
 
 
Pension Benefits
 
Pension Benefits
(in thousands)
Three months ended
June 30,
 
Six months ended
June 30,
2013
 
2012
 
2013
 
2012
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
1,048

 
1,105

 
2,114

 
2,248

Expected return on plan assets
(1,747
)
 
(1,534
)
 
(3,503
)
 
(3,073
)
Recognized net actuarial loss
373

 
299

 
765

 
749

Benefit income
$
(326
)
 
$
(130
)
 
$
(624
)
 
$
(76
)
 
 
Postretirement Benefits
 
Postretirement Benefits
(in thousands)
Three months ended
June 30,
 
Six months ended
June 30,
2013
 
2012
 
2013
 
2012
Service cost
$
197

 
$
184

 
$
421

 
$
376

Interest cost
338

 
327

 
683

 
660

Amortization of prior service cost
(136
)
 
(136
)
 
(272
)
 
(272
)
Recognized net actuarial loss
377

 
313

 
737

 
640

Benefit cost
$
776

 
$
688

 
$
1,569

 
$
1,404



16
Table of Contents


7. Segment Information
The Company’s operations include six reportable business segments that are distinguished primarily on the basis of products and services offered. The Grain business includes grain merchandising, the operation of terminal grain elevator facilities and the investment in Lansing Trade Group, LLC (“LTG”). The Ethanol business purchases and sells ethanol and also manages the ethanol production facilities organized as limited liability companies, one of which is consolidated and three of which are investments accounted for under the equity method, and various service contracts for these investments. Rail operations include the leasing, marketing and fleet management of railcars and locomotives, railcar repair and metal fabrication. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers. Turf & Specialty operations include the production and distribution of turf care and corncob-based products. The Retail business operates large retail stores, a specialty food market, a distribution center and a lawn and garden equipment sales and service facility. Included in “Other” are the corporate level amounts not attributable to an operating segment.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. Inter-segment sales are made at prices comparable to normal, unaffiliated customer sales.
During the first quarter, approximately $28 million of assets specific to the agronomy business that was included in the purchase of certain assets of Green Plains Grain Company, LLC in the fourth quarter of 2012 were reclassified from the Grain segment to the Plant Nutrient segment. Corresponding items of segment information have been reclassified to conform to current year presentation.
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
(in thousands)
 
 
 
 
 
 
 
Revenues from external customers
 
 
 
 
 
 
 
Grain
$
891,350

 
$
718,911

 
$
1,727,845

 
$
1,418,772

Ethanol
222,240

 
167,758

 
421,549

 
318,428

Plant Nutrient
330,339

 
308,797

 
442,241

 
484,157

Rail
38,601

 
32,046

 
84,965

 
67,905

Turf & Specialty
43,144

 
43,845

 
90,331

 
88,972

Retail
41,290

 
44,477

 
72,003

 
74,733

Total
$
1,566,964

 
$
1,315,834

 
$
2,838,934

 
$
2,452,967

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Inter-segment sales
 
 
 
 
 
 
 
Grain
$
1

 
$
—

 
$
333

 
$
1

Plant Nutrient
4,015

 
5,334

 
11,712

 
8,417

Rail
105

 
208

 
209

 
411

Turf & Specialty
841

 
497

 
1,840

 
1,473

Total
$
4,962

 
$
6,039

 
$
14,094

 
$
10,302

 

17
Table of Contents

 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Interest expense (income)
 
 
 
 
 
 
 
Grain
$
2,474

 
$
2,687

 
$
6,323

 
$
5,939

Ethanol
280

 
185

 
606

 
209

Plant Nutrient
797

 
632

 
1,715

 
1,342

Rail
1,429

 
1,156

 
2,942

 
2,334

Turf & Specialty
346

 
312

 
748

 
668

Retail
152

 
157

 
367

 
353

Other
(623
)
 
251

 
(1,442
)
 
(135
)
Total
$
4,855

 
$
5,380

 
$
11,259

 
$
10,710


 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Equity in earnings (loss) of affiliates
 
 
 
 
 
 
 
Grain
$
5,027

 
$
7,505

 
$
12,937

 
$
13,457

Ethanol
4,983

 
(2,410
)
 
4,877

 
(4,081
)
Plant Nutrient
—

 
1

 
—

 
3

Total
$
10,010

 
$
5,096

 
$
17,814

 
$
9,379

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Other income (expense), net
 
 
 
 
 
 
 
Grain
$
(349
)
 
$
489

 
$
222

 
$
1,316

Ethanol
199

 
20

 
430

 
36

Plant Nutrient
164

 
1,010

 
139

 
1,128

Rail
702

 
824

 
1,648

 
1,600

Turf & Specialty
175

 
289

 
450

 
490

Retail
100

 
155

 
214

 
279

Other
301

 
(116
)
 
915

 
1,068

Total
$
1,292

 
$
2,671

 
$
4,018

 
$
5,917

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Income (loss) before income taxes
 
 
 
 
 
 
 
Grain
$
2,053

 
$
15,277

 
$
10,352

 
$
34,712

Ethanol
10,601

 
(2,105
)
 
13,080

 
(1,984
)
Plant Nutrient
23,240

 
27,953

 
22,678

 
33,781

Rail
9,680

 
7,199

 
24,254

 
15,217

Turf & Specialty
2,195

 
2,753

 
6,196

 
4,955

Retail
1,539

 
1,428

 
(1,630
)
 
(1,321
)
Other
(2,289
)
 
(5,950
)
 
(6,254
)
 
(10,157
)
Noncontrolling interests
1,193

 
(728
)
 
927

 
(1,407
)
Total
$
48,212

 
$
45,827

 
$
69,603

 
$
73,796



18
Table of Contents

(in thousands)
June 30, 2013
 
December 31, 2012
 
June 30, 2012
Identifiable assets
 
 
 
 
 
Grain
$
794,913

 
$
1,076,986

 
$
844,526

Ethanol
207,977

 
206,975

 
212,094

Plant Nutrient
240,192

 
257,980

 
214,617

Rail
298,525

 
289,467

 
310,651

Turf & Specialty
73,343

 
82,683

 
66,580

Retail
50,313

 
51,772

 
56,986

Other
155,718

 
216,441

 
89,320

Total
$
1,820,981

 
$
2,182,304

 
$
1,794,774



8. Related Party Transactions
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.
The following table presents the Company’s investment balance in each of its equity method investees by entity:
 
(in thousands)
June 30, 2013
 
December 31, 2012
 
June 30, 2012
The Andersons Albion Ethanol LLC
$
32,047

 
$
30,227

 
$
31,248

The Andersons Clymers Ethanol LLC
34,257

 
33,119

 
38,225

The Andersons Marathon Ethanol LLC
34,818

 
32,996

 
37,782

Lansing Trade Group, LLC
91,573

 
92,094

 
80,052

Other
2,546

 
2,472

 
2,303

Total
$
195,241

 
$
190,908

 
$
189,610

The Company holds a majority interest (66%) in The Andersons Ethanol Investment LLC (“TAEI”). This consolidated entity holds a 50% interest in The Andersons Marathon Ethanol LLC (“TAME”). The noncontrolling interest in TAEI is attributed 34% of the gains and losses of TAME recorded by the Company.
The following table summarizes income (losses) earned from the Company’s equity method investments by entity:
 
(in thousands)
% ownership at
June 30, 2013
 
Three months ended
June 30,
Six months ended
June 30,
 
 
 
2013
 
2012
 
2013
 
2012
The Andersons Albion Ethanol LLC
50%
 
$
972

 
$
(215
)
 
$
1,916

 
$
418

The Andersons Clymers Ethanol LLC
38%
 
1,358

 
(655
)
 
1,139

 
(1,012
)
The Andersons Marathon Ethanol LLC
50%
 
2,654

 
(1,540
)
 
1,822

 
(3,487
)
Lansing Trade Group, LLC
49% *
 
4,873

 
7,244

 
12,864

 
13,160

Other
5%-23%
 
153

 
262

 
73

 
300

Total
 
 
$
10,010

 
$
5,096

 
$
17,814

 
$
9,379


 *    This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 2%.

Total distributions received from unconsolidated affiliates were $5.1 million and $13.4 million for the three and six months ended June 30, 2013, respectively.

19
Table of Contents

The Company does not hold a majority of the outstanding shares of LTG. All major operating decisions of LTG are made by LTG’s Board of Directors and the Company does not have a majority of the board seats. In addition, based on the terms of the operating agreement between LTG and its owners, the minority shareholders have substantive participating rights that allow them to effectively participate in the decisions made in the ordinary course of business that are significant to LTG. Due to these factors, the Company does not have control over LTG and therefore accounts for this investment under the equity method.

Investment in Debt Securities
The Company owns 100% of the cumulative convertible preferred shares of Iowa Northern Railway Corporation (“IANR”), which operates a short-line railroad in Iowa. As a result of this investment, the Company has a 49.9% voting interest in IANR, with the remaining 50.1% voting interest held by the common shareholders. The preferred shares have certain rights associated with them, including voting, dividends, liquidation, redemption and conversion. Dividends accrue to the Company at a rate of 14% annually whether or not declared by IANR and are cumulative in nature. The Company can convert its preferred shares into common shares of IANR at any time, but the shares cannot be redeemed until May 2015. This investment is accounted for as “available-for-sale” debt securities in accordance with ASC 320 and is carried at estimated fair value in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheet. The estimated fair value of the Company’s investment in IANR as of June 30, 2013 was $17.7 million.
Based on the Company’s assessment, IANR is considered a variable interest entity (“VIE”). Since the Company does not possess the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, it is not considered to be the primary beneficiary of IANR and therefore does not consolidate IANR. The decisions that most significantly impact the economic performance of IANR are made by IANR’s Board of Directors. The Board of Directors has five directors; two directors from the Company, two directors from the common shareholders and one independent director who is elected by unanimous decision of the other four directors. The vote of four of the five directors is required for all key decisions.
The Company’s current maximum exposure to loss related to IANR is $22.4 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $4.7 million. The Company does not have any obligation or commitments to provide additional financial support to IANR.
Related Party Transactions
In the ordinary course of business, the Company will enter into related party transactions with each of the investments described above, along with other related parties. The following table sets forth the related party transactions entered into for the time periods presented:
 
(in thousands)
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Sales revenues
$
359,759

 
$
259,264

 
$
669,464

 
$
476,076

Service fee revenues (a)
5,814

 
5,393

 
11,615

 
10,872

Purchases of product
183,105

 
145,569

 
345,060

 
294,419

Lease income (b)
1,518

 
1,855

 
3,070

 
3,733

Labor and benefits reimbursement (c)
2,623

 
3,010

 
5,266

 
5,751

Other expenses (d)
395

 
298

 
753

 
503

Accounts receivable at June 30 (e)
24,149

 
22,111

 
 
 
 
Accounts payable at June 30 (f)
27,936

 
20,478

 
 
 
 
 
(a)
Service fee revenues include management fee, corn origination fee, ethanol and DDG marketing fees, and other commissions.
(b)
Lease income includes the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the various ethanol LLCs and IANR.
(c)
The Company provides all operational labor to the unconsolidated ethanol LLCs and charges them an amount equal to the Company’s costs of the related services.
(d)
Other expenses include payments to IANR for repair facility rent and use of their railroad reporting mark, payment to LTG for the lease of railcars and other various expenses.
(e)
Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees.

20
Table of Contents

(f)
Accounts payable represents amounts due to related parties for purchases of ethanol.

For the quarters ended June 30, 2013 and 2012, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $162.8 million and $151.9 million, respectively. For the six months ended June 30, 2013 and 2012, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $308.6 million and $294.9 million, respectively. For the quarters ended June 30, 2013 and 2012, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $200.2 million and $165.3 million, respectively. For the six months ended June 30, 2013 and 2012, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were $405.1 million and $344.4 million, respectively.
From time to time, the Company enters into derivative contracts with certain of its related parties for the purchase and sale of corn and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties for the periods ended June 30, 2013, December 31, 2012 and June 30, 2012 was $8.6 million, $3.2 million, and $1.1 million, respectively. The fair value of derivative contract liabilities with related parties for the periods ended June 30, 2013, December 31, 2012 and June 30, 2012 was $0.6 million, $0.3 million, and $1.8 million, respectively.

9. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2013, December 31, 2012 and June 30, 2012:
 
(in thousands)
June 30, 2013
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
32,272

 
$
—

 
$
—

 
$
32,272

Restricted cash
872

 
—

 
—

 
872

Commodity derivatives, net (c)
79,006

 
(21,176
)
 
—

 
57,830

Convertible preferred securities (b)
—

 
—

 
17,710

 
17,710

Other assets and liabilities (a)
8,837

 
(726
)
 
—

 
8,111

Total
$
120,987

 
$
(21,902
)
 
$
17,710

 
$
116,795

 
(in thousands)
December 31, 2012
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
78,674

 
$
—

 
$
—

 
$
78,674

Restricted cash
398

 
—

 
—

 
398

Commodity derivatives, net (c)
46,966

 
23,634

 
—

 
70,600

Convertible preferred securities (b)
—

 
—

 
17,220

 
17,220

Other assets and liabilities (a)
7,813

 
(2,109
)
 
—

 
5,704

Total
$
133,851

 
$
21,525

 
$
17,220

 
$
172,596

 
(in thousands)
June 30, 2012
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
104

 
$
—

 
$
—

 
$
104

Restricted cash
5,644

 
—

 
—

 
5,644

Commodity derivatives, net (c)
48,558

 
48,078

 
—

 
96,636

Convertible preferred securities (b)
—

 
—

 
17,350

 
17,350

Other assets and liabilities (a)
7,182

 
(2,022
)
 
—

 
5,160

Total
$
61,488

 
$
46,056

 
$
17,350

 
$
124,894

 
(a)
Included in other assets and liabilities is interest rate and foreign currency derivatives, swaptions and deferred compensation assets.
(b)
Recorded in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheets.

21
Table of Contents

(c)
Includes associated cash posted/received as collateral

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 on the CME or the New York Mercantile Exchange for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because “basis” for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the Agribusiness industry, we have concluded that “basis” is a “Level 2” fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a significant input to fair value for the majority of these commodity contracts.
The Company’s convertible preferred securities are measured at fair value using a combination of the income approach on a quarterly basis and the market approach on an annual basis. Specifically, the income approach incorporates the use of the Discounted Cash Flow method, whereas the Market Approach incorporates the use of the Guideline Public Company method. Application of the Discounted Cash Flow method requires estimating the annual cash flows that the business enterprise is expected to generate in the future. The assumptions input into this method are estimated annual cash flows for a specified estimation period, the discount rate, and the terminal value at the end of the estimation period. In the Guideline Public Company method, valuation multiples, including total invested capital, are calculated based on financial statements and stock price data from selected guideline publicly traded companies. On an annual basis, a comparative analysis is then performed for factors including, but not limited to size, profitability and growth to determine fair value.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
 
 
2013

2012
(in thousands)
Interest
rate
derivatives
and
swaptions

Convertible
preferred
securities

Commodity
derivatives,
net

Interest
rate
derivatives
and
swaptions

Convertible
preferred
securities

Commodity
derivatives,
net
Asset (liability) at December 31,
$
—

 
$
17,220

 
$
—

 
$
(2,178
)
 
$
20,360

 
$
2,467

Unrealized gains included in other comprehensive income
—

 
490

 
—

 
—

 
—

 
—

Transfers to level 2
—

 
—

 
—

 
2,178

 
—

 
(2,467
)
Asset at March 31,
$
—

 
$
17,710

 
$
—

 
$
—

 
$
20,360

 
$
—

Unrealized losses included in other comprehensive income
—

 
—

 
—

 
—

 
(3,010
)
 
—

Asset at June 30,
$
—

 
$
17,710

 
$
—

 
$
—

 
$
17,350

 
$
—


In accordance with ASU 2011-04, the following table summarizes information about the Company's Level 3 fair value measurements as of June 30, 2013:

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Quantitative Information about Level 3 Fair Value Measurements
 
 
 
 
 
 
 
Range
 
 
(in thousands)
Fair Value as of June 30, 2013
 
Valuation Method
 
Unobservable Input
 
Low
 
High
 
Weighted Average
Convertible Preferred Securities
$
17,710

 
Market Approach
 
EBITDA Multiples
 
5.50

 
7.00

 
6.60

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income Approach
 
Discount Rate
 
17.0
%
 
17.0
%
 
17.0
%

Fair Value of Financial Instruments
The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered “Level 2” in the fair value hierarchy.
 
(in thousands)
June 30,
2013

December 31,
2012
Fair value of long-term debt
$
458,025

 
$
459,397

Fair value in excess of carrying value
3,909

 
17,009

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

10. Debt
The Company is party to borrowing arrangements with a syndicate of banks. See Note 10 in the Company’s 2012 Form 10-K for a complete description of these arrangements. Total borrowing capacity for the Company under all lines of credit is currently at $878.1 million, including $28.1 million non-recourse debt of The Andersons Denison Ethanol LLC ("TADE"). At June 30, 2013, the Company had a total of $771.9 million available for borrowing under its lines of credit. The Company was in compliance with all financial and non-financial covenants as of June 30, 2013.
The Company’s short-term and long-term debt at June 30, 2013, December 31, 2012 and June 30, 2012 consisted of the following:
 
(in thousands)
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Borrowings under short-term line of credit – nonrecourse
$
—

 
$
4,219

 
$
1,608

Borrowings under short-term line of credit – recourse
50,000

 
20,000

 
308,000

Total borrowings under short-term line of credit
$
50,000

 
$
24,219

 
$
309,608

Current maturities of long -term debt – nonrecourse
$
3,274

 
$
2,496

 
$
1,385

Current maturities of long-term debt – recourse
41,822

 
12,649

 
28,262

Total current maturities of long-term debt
$
45,096

 
$
15,145

 
$
29,647

Long-term debt, less current maturities – nonrecourse
$
19,621

 
$
20,067

 
$
32,544

Long-term debt, less current maturities – recourse
389,399

 
407,176

 
285,104

Total long-term debt, less current maturities
$
409,020

 
$
427,243

 
$
317,648



11. Commitments and Contingencies
The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, although individual cases that are material in size occur infrequently. As a defendant, the Company establishes reserves for claimed amounts that are considered probable, and capable of estimation. If those cases are resolved for lesser amounts, the excess reserves are taken into income and, conversely, if those cases are resolved for larger than the amount the Company has accrued, the Company records income. 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

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witnesses, the performance of counsel, the state of the law, and the impressions of judges and jurors, any of which can be critical in importance, yet difficult, if not impossible, to predict. Consequently, cases currently pending, or future matters, may result in unexpected, and non-recurring losses, or income, from time to time. Finally, litigation results are often subject to judicial reconsideration, appeal and further negotiation by the parties, and as a result, the final impact of a particular judicial decision may be unknown for some time, or may result in continued reserves to account for the potential of such post-verdict actions.
The estimated range of loss for all outstanding claims that are considered reasonably possible of occurring is not material. We have received, and are cooperating fully with, a request for information from the United States Environmental Protection Agency (“U.S. EPA”) regarding the history of our grain and fertilizer facility along the Maumee River in Toledo, Ohio. The U.S. EPA is investigating the possible introduction into the Maumee River of hazardous materials potentially leaching from rouge piles deposited along the riverfront by glass manufacturing operations that existed in the area prior to our initial acquisition of the land in 1960. We have on several prior occasions cooperated with local, state and federal regulators to install or improve drainage systems to contain storm water runoff and sewer discharges along our riverfront property to minimize the potential for such leaching. Other area land owners and the successor to the original glass making operations have also been contacted by the U.S. EPA for information. No claim or finding has been asserted thus far.


12. Business Acquisitions

There were no business acquisitions completed in the first six months of 2013.

Prior Year Business Acquisitions

On December 3, 2012, the Company completed the purchase of a majority of the grain and agronomy assets of Green Plains Grain Company ("GPG"), a subsidiary of Green Plains Renewable Energy, Inc. for a purchase price of $120.2 million, which included a $3.3 million payable to the acquiree that was outstanding as of December 31, 2012 and paid in January 2013. The various facilities located in Iowa and Tennessee have a combined grain storage capacity of more than 32.0 million bushels and 12,000 tons of nutrient storage.
During the first quarter of 2013, the purchase price allocation for Green Plains Grain Company, which was acquired in the fourth quarter of 2012 was finalized. The measurement period adjustments to the purchase price allocation are the result of additional information obtained since the filing of our Form 10-K for the year ended December 31, 2012. Due to these revision of estimates, (i) property, plant and equipment decreased $135 thousand, (ii) intangible assets decreased $2.6 million due to a change in forecasted cash flows specific to the agronomy assets, (iii) other liabilities and noncontrolling interests increased $235 thousand to reflect the noncontrolling interest in the acquisition and (iv) goodwill increased $3 million as an offset to the above-mentioned changes related to certain entities acquired.
The summarized final purchase price allocation is as follows:

(in thousands)
 
Accounts receivable
$
19,174

Inventory
121,983

Property, plant and equipment
57,828

Intangible assets
4,600

Goodwill
33,175

Commodity derivatives
4,701

Other assets
1,775

Accounts payable
(91,001
)
Debt assumed
(29,632
)
Other liabilities and noncontrolling interests
(2,371
)
Total purchase price
$
120,232


The goodwill recognized as a result of the GPG acquisition is $33.2 million, for which the full amount is deductible for tax purposes, and is included in the Grain reportable segment. The goodwill relates to the value of a fully functional business consisting of a successful management team and an experienced and talented work force.

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Details of the intangible assets acquired are as follows:
 
(in thousands)
Fair
Value
 
Useful
Life
Supplier relationships
$
4,600

 
3 to 5 years
Total identifiable intangible assets
$
4,600

 
4 years *
*weighted average number of years

On January 31, 2012, the Company purchased 100% of the stock of New Eezy Gro, Inc. (“NEG”) for a purchase price of $16.8 million. New Eezy Gro is a manufacturer and wholesale marketer of specialty agricultural nutrients and industrial products.

The summarized purchase price allocation is as follows:

(in thousands)
 
Current assets
$
5,106

Intangible assets
9,600

Goodwill
6,681

Property, plant and equipment
3,586

Current liabilities
(3,784
)
Deferred tax liability, net
(4,412
)
Total purchase price
$
16,777


The goodwill recognized as a result of the NEG acquisition is $6.7 million and is included in the Plant Nutrient segment. The goodwill relates to the value of proprietary products and processes as well as an assembled workforce.

Details of the intangible assets acquired are as follows:
(in thousands)
Fair Value

Useful Life
Trademarks
$
1,200

10 years
Customer list
5,500

10 years
Technology
2,100

5 years
Noncompete agreement
800

7 years
Total identifiable intangible assets
$
9,600

9 years *
*weighted average number of years
On May 1, 2012, the Company and its subsidiary, The Andersons Denison Ethanol LLC ("TADE") completed the purchase of certain assets of an ethanol production facility in Denison, Iowa for a purchase price of $77.4 million. Previously owned by Amaizing Energy Denison LLC and Amaizing Energy Holding Company, LLC, the operations consist of a 55 million gallon capacity ethanol facility with an adjacent 2.7 million bushel grain terminal, with direct access to two Class 1 railroads in Iowa. TADE has been organized to provide investment opportunity for the Company and potential outside investors. The Company owns the grain terminal, manages TADE, and provides grain origination, risk management, and DDG and ethanol marketing services. The Company currently owns a controlling interest of 85% of TADE, and therefore includes TADE's results of operations in its consolidated financial statements. The fair value of the noncontrolling interest in TADE purchased by the minority investor at the acquisition date was $6.1 million.
The summarized purchase price allocation is as follows:
 
(in thousands)
 
Grain elevator
$
14,285

Inventory
10,087

Intangible assets
2,373

Other current assets
962

Property, plant and equipment
49,693

Total purchase price
$
77,400


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Details of the intangible assets acquired are as follows:
 
(in thousands)
Fair
Value
 
Useful
Life
Lease intangibles
$
2,123

 
10 months to 5 years
Noncompete agreement
250

 
2 years
Total identifiable intangible assets
$
2,373

 
3 years *
*weighted average number of years

On October 30, 2012, the Company completed the purchase of substantially all of the assets of Mt. Pulaski Products for a purchase price of $10.7 million. The operations consist of several corncob processing facilities in central Illinois.
The summarized purchase price allocation is as follows:
(in thousands)
 
Inventory
$
3,757

Intangible assets
1,000

Goodwill
1,985

Property, plant and equipment
3,941

Total purchase price
$
10,683

The goodwill recogized as a result of the Mt. Pulaski acquisition is $2.0 million, for which the full amount is deductible for tax purposes, and is included in the Turf & Specialty segment. The goodwill relates to expected synergies from combining operations as well as an assembled workforce.
Details of the intangible assets acquired are as follows:
 
(in thousands)
Fair
Value
 
Useful
Life
Trademark
$
300

 
Indefinite
Customer list
600

 
10 years
Noncompete agreement
100

 
7 years
Total identifiable intangible assets
$
1,000

 
10 years *
*weighted average number of years


13. Income Taxes

For the three months ended June 30, 2013, the income tax effective rate was 36.3%. For the three months ended June 30, 2012, the income tax effective rate was 37.9%. The decrease in the effective tax rate was due primarily to income attributable to the noncontrolling interests that did not increase taxes.

For the six months ended June 30, 2013, the income tax effective rate was 38.2%. For the six months ended June 30, 2012, the income tax effective rate was 37.4%. The increase in the effective tax rate was due primarily to decreased benefits related to domestic production activities and a correction made with respect to the accounting for the other comprehensive income portion of the Company's retiree health care plan liability and the Medicare Part D subsidy.
The Company's 2013 income tax provision includes deferred tax expense of $1.4 million due to a correction of other comprehensive income related to the portion of the Company's retiree health care plan liability and the Medicare Part D subsidy. The correction related to the years 2009 through 2012 and was recorded during the first quarter of 2013. The impact of this error on amounts previously reported was determined to be immaterial to the Consolidated Financial Statements. As a result of the correction of the error, deferred income tax expense for the six months ended June 30, 2013 increased and accumulated other comprehensive loss decreased by $1.4 million.

The Company made tax payments of $3.3 million during the three months ended June 30, 2013.

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14. Subsequent Event

On July 31, 2013, the Company, along with Lansing Trade Group LLC established joint ventures that acquired 100% percent of the stock of Thompsons Limited for a purchase price of $145 million plus an adjustment for excess working capital. Each Company owns 50% of the investment. Thompsons Limited is a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario, and operates 12 locations across Ontario and Minnesota.


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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. You are urged to carefully consider these risks and others, including those risk factors listed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”). In some cases, you can identify forward-looking statements by terminology such as “may,” “anticipates,” “believes,” “estimates,” “predicts,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.


Critical Accounting Policies and Estimates
Our critical accounting policies and critical accounting estimates, as described in our 2012 Form 10-K, have not materially changed during the first and second quarters of 2013.
Executive Overview
The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit. As a result, changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to merchandising revenues and service income.
Grain Business
Our Grain business operates grain elevators in various states in the U.S. Corn Belt. In addition to storage, merchandising and grain trading, Grain performs marketing, risk management, and corn origination services to its customers and affiliated ethanol production facilities. Grain is a significant investor in Lansing Trade Group, LLC (“LTG”), an established commodity trading, grain handling and merchandising business with operations throughout the country and with global trading/merchandising offices.
Grain inventories on hand at June 30, 2013 were 48.9 million bushels, of which 2.5 million bushels were stored for others. This compares to 57.9 million bushels on hand at June 30, 2012, of which 1.2 million bushels were stored for others.
Cool and wet conditions in the spring and early summer delayed planting progress in some areas. Although conditions for corn were delayed, they have benefited from ample rain. However, soybeans have suffered from the excess moisture and will need the right mix of precipitation and temperatures in August and September in order to reach normal yields. Our geographies can still expect good to very good harvests if the weather is favorable going forward. Approximately 98% of wheat has been harvested thus far. While wheat quantities appear to be satisfactory, qualities have been impacted by the excess moisture and are likely to negatively impact space income from wheat.
According to the U.S. Department of Agriculture, in the states where we have grain storage facilities, 22% of the corn is rated good to excellent, compared to 17% at the same time last year. Soybeans rated as good to excellent were an average of 16% compared to 21% at this same time last year.

On July 31, 2013, the Company, along with Lansing Trade Group LLC established joint ventures that acquired 100% percent of the stock of Thompsons Limited for a purchase price of $145 million plus an adjustment for working capital at closing. Each Company owns 50% of the investment. Thompsons Limited is a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario, and operates 12 locations across Ontario and Minnesota.

Ethanol Business
Our Ethanol business holds investments in four ethanol production facilities organized as separate limited liability companies, three of which are accounted for under the equity method (the "unconsolidated ethanol LLCs") and one that is consolidated The Andersons Denison Ethanol LLC ("TADE"). The Ethanol business purchases and sells ethanol, offers facility operations, risk

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management, and ethanol, corn oil and distillers dried grains (“DDG”) marketing to the ethanol plants in which it invests in and operates, as well as third parties.
Gasoline demand increased during the second quarter along with ethanol prices which had a favorable impact on ethanol margins. Earnings realized from our ethanol LLC investments were positive for the quarter and six months ended June 30, 2013. At this time, we have some future production and required inputs under contract at positive margins, although the potential still exists for negative margins in the third quarter due to limitations in corn availability.
Ethanol volumes shipped for the three and six months ended June 30, 2013 and 2012 were as follows:
(in thousands)
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Ethanol (gallons shipped)
69,881

 
66,381

 
139,716

 
125,445

E-85 (gallons shipped)
6,626

 
5,094

 
10,347

 
9,241

Corn Oil (pounds shipped)
21,609

 
14,502

 
38,856

 
23,556

DDG (tons shipped)
262

 
258

 
524

 
486

Plant Nutrient Business
Our Plant Nutrient business is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients and pelleted lime and gypsum products in the U.S. Corn Belt, Florida and Puerto Rico. The Plant Nutrient Group provides warehousing, packaging and manufacturing services to basic manufacturers and other distributors. The business also manufactures and distributes a variety of industrial products throughout the U.S. and Puerto Rico including nitrogen reagents for air pollution control systems used in coal-fired power plants, water treatment products, and de-icers and anti-icers for airport runways, roadways, and other commercial applications. The major nutrient products sold by the business principally contain nitrogen, phosphate, potassium and sulfur.

Storage capacity at our wholesale nutrient and farm center facilities was approximately 470,000 tons for dry nutrients and approximately 397,000 tons for liquid nutrients at June 30, 2013.
Fertilizer tons sold (including sales and service tons) for the three and six months ended June 30, 2013 were 0.8 million tons and 1.1 million tons, respectively, compared to the three and six months ended June 30, 2012 of 0.7 million tons and 1.2 million tons. Volume for the period was good considering the prolonged wet weather experienced in May and June. However, the harvest is anticipated to be later this year, which could be unfavorable for early third quarter nutrient application.
Rail Business
Our Rail business buys, sells, leases, rebuilds and repairs various types of used railcars and rail equipment. The business also provides fleet management services to fleet owners. Rail has a diversified fleet of car types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives.
In the second quarter, Rail had gains on sales of railcars and related leases in the amount of $4.4 million compared to $2.4 million in the prior year. Railcars and locomotives under management (owned, leased or managed for financial institutions in non-recourse arrangements) at June 30, 2013 were 23,245 compared to 23,107 at June 30, 2012. The average utilization rate (railcars and locomotives under management that are in lease services, exclusive of railcars managed for third party investors) has increased slightly from 84.7% to 85.7% for the quarters ended June 30, 2012 and 2013.
The Rail Group continues to add cars to the fleet and look for potential opportunities in the repair business.
Turf & Specialty Business
Turf & Specialty is one of a very limited number of processors of corncob-based products in the United States. Corncob-based products are manufactured for a variety of uses including laboratory animal bedding, private-label cat litter, as well as absorbents, blast cleaners, carriers and polishers. Corncob-based products are sold throughout the year. Turf & Specialty also produces granular fertilizer products for the professional lawn care and golf course markets. It also sells consumer fertilizer and weed and turf pest control products for “do-it-yourself” application to mass merchandisers, small independent retailers and other lawn fertilizer manufacturers and performs contract manufacturing of fertilizer and weed and turf pest control products. These products are distributed throughout the United States and Canada and into Europe and Asia. The turf products industry is highly seasonal, with the majority of sales occurring from early spring to early summer.

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Table of Contents

Retail Business
Our Retail business includes large retail stores operated as “The Andersons” and a specialty food market operated as “The Andersons Market”. It also operates a sales and service facility for outdoor power equipment. The retail concept is More for Your Home ® and the conventional retail stores focus on providing significant product breadth with offerings in home improvement and other mass merchandise categories, as well as specialty foods, wine and indoor and outdoor garden centers.
The retail business is highly competitive. Our stores compete with a variety of retail merchandisers, including home centers, department and hardware stores, as well as local and national grocers. The Retail Group continues to work on new departments and products to maximize the profitability.
Other
Our “Other” business segment represents corporate functions that provide support and services to the operating segments. The results contained within this segment include expenses and benefits not allocated back to the operating segments, including implementation expenses for our ERP project.

Operating Results
The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Income with a separate discussion by segment. Additional segment information is included in the Notes to the Condensed Consolidated Financial Statements herein in Note 7. Segment Information.
 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Sales and merchandising revenues
$
1,566,964

 
$
1,315,834

 
$
2,838,934

 
$
2,452,967

Cost of sales and merchandising revenues
1,463,735

 
1,213,184

 
2,656,432

 
2,264,447

Gross profit
103,229

 
102,650

 
182,502

 
188,520

Operating, administrative and general expenses
61,464

 
59,210

 
123,472

 
119,310

Interest expense
4,855

 
5,380

 
11,259

 
10,710

Equity in earnings of affiliates
10,010

 
5,096

 
17,814

 
9,379

Other income, net
1,292

 
2,671

 
4,018

 
5,917

Income before income taxes
48,212

 
45,827

 
69,603

 
73,796

Income (loss) attributable to noncontrolling interests
1,193

 
(728
)
 
927

 
(1,407
)
Income before income taxes attributable to The Andersons, Inc.
$
47,019

 
$
46,555

 
$
68,676

 
$
75,203












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Comparison of the three months ended June 30, 2013 with the three months ended June 30, 2012:
Grain Group
 
 
Three months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
891,350

 
$
718,911

Cost of sales and merchandising revenues
869,258

 
692,471

Gross profit
22,092

 
26,440

Operating, administrative and general expenses
22,243

 
16,470

Interest expense
2,474

 
2,687

Equity in earnings of affiliates
5,027

 
7,505

Other income (expense), net
(349
)
 
489

Income before income taxes
$
2,053

 
$
15,277


Second quarter operating results for the Grain Group decreased $13.2 million from the results of the same period last year. Sales and merchandising revenues increased $172.4 million and is primarily the result of an increase in the volume of bushels shipped for corn and wheat. Cost of sales and merchandising revenues increased $176.8 million compared to the second quarter of 2012 and was also driven by higher volume. Gross profit is down $4.3 million from June 2012 and is primarily a result of lower wheat basis appreciation, a component of space income. Basis is defined as the difference between the cash price of a commodity in one of the Company's facilities and the nearest exchange traded futures price. The business acquisition in the fourth quarter of 2012 added approximately $4.8 million of gross profit in the second quarter.

Operating expenses increased $5.8 million compared to the same period in 2012 due to added operating expenses of the new locations acquired in the fourth quarter of last year. The largest increases in expense are employee related expenses as well as depreciation expense due to the increase in investing activities. Interest expense did not change significantly. Equity in earnings of affiliates decreased $2.5 million from the same period in 2012, primarily due to the lower performance of the investment in LTG. Other income is lower in the current year due to certain foreign exchange losses incurred during the quarter.
Ethanol Group
 
 
Three months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising and service fee revenues
$
222,240

 
$
167,758

Cost of sales and merchandising revenues
212,591

 
165,833

Gross profit
9,649

 
1,925

Operating, administrative and general expenses
2,757

 
2,183

Interest expense
280

 
185

Equity in earnings (loss) of affiliates
4,983

 
(2,410
)
Other income, net
199

 
20

Income (loss) before income taxes
11,794

 
(2,833
)
Income (loss) attributable to noncontrolling interests
1,193

 
(728
)
Income (loss) before income taxes attributable to The Andersons, Inc.
$
10,601

 
$
(2,105
)

Operating results for the Ethanol Group improved $12.7 million from the results of the same period last year. Sales and merchandising and service fee revenues increased $54.5 million and is primarily due to an increase in both the gallons sold and the average price per gallon of ethanol sold. Sales of ethanol co-products also contributed to the significant increase over the second quarter of 2012. In addition, TADE sales began on May 1, 2012, accounting for a portion of the increase from 2012. The increase in cost of sales primarily relates to the increase in volume as corn costs have actually declined. The increase in gross profit quarter over quarter is attributed to the increase in ethanol demand and the price of ethanol which contributed to more favorable margins. There was also an increase in ethanol service fees for the quarter.

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Operating expenses increased $0.6 million over the same period last year primarily due to employee related expenses. There were no significant changes in interest expense and other income. Equity in earnings of affiliates improved $7.4 million and relates to improved earnings from our unconsolidated ethanol LLC investments. The ethanol plants performance was favorably impacted by higher ethanol margins resulting from declining corn costs and higher demand for ethanol.
Plant Nutrient Group
 
Three months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
330,339

 
$
308,797

Cost of sales and merchandising revenues
293,138

 
267,140

Gross profit
37,201

 
41,657

Operating, administrative and general expenses
13,328

 
14,083

Interest expense
797

 
632

Equity in earnings of affiliates
—

 
1

Other income, net
164

 
1,010

Income before income taxes
$
23,240

 
$
27,953


Operating results for the Plant Nutrient Group decreased $4.7 million from the same period last year. During the first quarter, certain agronomy assets from the Green Plains Grain Company business acquisition completed in the fourth quarter of 2012, were reclassified from the Grain segment to the Plant Nutrient segment. The impact on second quarter 2013 operating results of the Plant Nutrient Group was a loss of $0.2 million. Sales and merchandising revenues increased $21.5 million due primarily to an increase in volume, including $19.4 million in sales from the business acquisition previously mentioned. The $26.0 million increase in cost of sales and merchandising revenues is due to an increase in volume, mainly due to growth from the acquisition. In regards to the decrease in gross profit of $4.5 million, volume was up but gross profit per ton was down. Margins for most nutrients are lower due to the market being flat with little price appreciation, and the reluctance of our dealer and farmer customers to purchase products ahead of need.

Operating expenses were lower for the three month period ended June 30, 2013 compared to the same period in 2012. The decrease is due to a decline in performance incentive expense as a result of lower performance and a increase in overhead absorption credits resulting from higher volume. There were no significant changes in interest expense and equity in earnings of affiliates. Other income was higher in the prior year quarter primarily due to gains recognized on assets that were involuntarily converted.
Rail Group
 
 
Three months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
38,601

 
$
32,046

Cost of sales and merchandising revenues
24,044

 
20,483

Gross profit
14,557

 
11,563

Operating, administrative and general expenses
4,150

 
4,032

Interest expense
1,429

 
1,156

Other income, net
702

 
824

Income before income taxes
$
9,680

 
$
7,199


Operating results for the Rail Group improved by $2.5 million compared to the results from the same period last year. Car sales increased $6.3 million, leasing revenues increased $0.8 million and sales in the repair facilities decreased $0.5 million quarter over quarter. The increase in car sales is due to higher volume and the increase in leasing revenues is primarily attributed to favorable lease rates. Cost of sales and merchandising revenues increased $3.6 million compared to the same period last year primarily as a result of higher volume of car sales.

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Rail gross profit increased by $3.0 million compared to the second quarter of 2012. Gross profit on car sales increased $2.0 million primarily as a result of higher volume of nonrecourse transactions. Gross profit in the leasing business increased $1.5 million and is attributed to improved lease rates. Gross profit in the repair facilities decreased $0.5 million due to lower volume of activity, as margins remained fairly consistent from period to period.

Operating expenses are comparable quarter over quarter. There were no significant changes in interest expense or other income compared to the same period last year.
Turf & Specialty Group
 
 
Three months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
43,144

 
$
43,845

Cost of sales and merchandising revenues
35,823

 
36,355

Gross profit
7,321

 
7,490

Operating, administrative and general expenses
4,955

 
4,714

Interest expense
346

 
312

Other income, net
175

 
289

Income before income taxes
$
2,195

 
$
2,753


Operating income for the Turf & Specialty Group decreased $0.6 million for the second quarter of 2013 compared to results from the same period last year, despite the acquisition of substantially all of the assets of the Mt. Pulaski cob mill business in the fourth quarter of 2012. Sales and merchandising revenues decreased $0.7 million primarily due to a volume decrease in the lawn business although total tons sold was up approximately 5% quarter over quarter. The acquisition previously mentioned impacted revenues in the second quarter of 2013 in the amount of $2.7 million. Consistent with the drop in revenues, cost of sales and merchandising revenues decreased $0.5 million compared to the same period last year and was driven by lawn business volume decreases and a 6% decrease in the average cost per ton sold as compared to the prior year quarter. Gross profit decreased $0.2 million due to a 7% decrease in the gross profit per ton sold in spite of increased volume.

There were no significant fluctuations in operating expenses, interest expense and other income quarter over quarter.
Retail Group
 
Three months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
41,290

 
$
44,477

Cost of sales and merchandising revenues
28,881

 
30,902

Gross profit
12,409

 
13,575

Operating, administrative and general expenses
10,818

 
12,145

Interest expense
152

 
157

Other income, net
100

 
155

Income before income taxes
$
1,539

 
$
1,428


Operating income for the Retail Group increased to $1.5 million which is comparable with the results of the same period last year. Sales and merchandising revenues decreased $3.2 million. The average sale per customer and customer count were both down quarter over quarter. Cost of sales and merchandising revenues decreased $2.0 million and gross profit decreased $1.2 million and was also driven by lower volume. The majority of these changes are due to the closure of the Woodville, Ohio store in the first quarter of 2013.

Operating expenses were $1.3 million lower than the comparable period last year primarily due to lower labor and benefits and advertising expenses due to the the closure of the Woodville store in the first quarter of 2013. There were no significant changes in interest expense and other income quarter over quarter.

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Other
 
 
Three months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
—

 
$
—

Cost of sales and merchandising revenues
—

 
—

Gross profit
—

 
—

Operating, administrative and general expenses
3,213

 
5,583

Interest (income) expense
(623
)
 
251

Other income (expense), net
301

 
(116
)
Loss before income taxes
$
(2,289
)
 
$
(5,950
)

Net corporate operating loss not allocated to business segments produced a loss of $2.3 million for the quarter ended June 30, 2013. Operating expenses were higher in the second quarter of 2012 due to higher employee benefit related expenses and the initial expenses incurred related to the phased implementation of an enterprise resource planning system. Interest income increased due to mark-to-market gains on interest rate derivative contracts.

The Company anticipates that its 2013 annual effective rate will be 38.5%. The Company's actual 2012 effective tax rate was 37.1%. The higher effective rate for 2013 is due to decreased benefits related to domestic production activities and a correction made in the first quarter with respect to the accounting for the other comprehensive income portion of the Company's retiree health care plan liability and the Medicare Part D subsidy.

Comparison of the six months ended June 30, 2013 with the six months ended June 30, 2012:
Grain Group
 
Six months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
1,727,845

 
$
1,418,772

Cost of sales and merchandising revenues
1,680,903

 
1,359,731

Gross profit
46,942

 
59,041

Operating, administrative and general expenses
43,426

 
33,163

Interest expense
6,323

 
5,939

Equity in earnings of affiliates
12,937

 
13,457

Other income, net
222

 
1,316

Income before income taxes
$
10,352

 
$
34,712


Operating results for the Grain Group decreased $24.4 million from the results of the same period last year. Sales and merchandising revenues increased $309.1 million and is primarily the result of an increase in the volume of bushels shipped (including newly acquired facilities) and to a lesser extent an increase in the average price per bushel sold for corn, soybeans and oats. Cost of sales and merchandising revenues increased $321.2 million and is consistent with the increase in sales volume. Gross profit decreased $12.1 million from the first six months of 2012 and relates primarily to a decrease in space income, and more specifically basis appreciation. Basis is defined as the difference between the cash price of a commodity in one of the Company's facilities and the nearest exchange traded futures price.

Operating expenses increased $10.3 million over the same period in 2012 due to an increase in labor related to organizational growth, depreciation expense due to increased capital investment, professional services and bad debt expense related to certain accounts. Interest expense did not change significantly period over period. Equity in earnings of affiliates decreased $0.5 million over the same period in 2012 and relates to income from the investment in LTG. Other income is lower in the current year due to certain foreign exchange losses realized during the second quarter.


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Ethanol Group
 
 
Six months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising and service fee revenues
$
421,549

 
$
318,428

Cost of sales and merchandising revenues
407,095

 
313,730

Gross profit
14,454

 
4,698

Operating, administrative and general expenses
5,148

 
3,835

Interest expense
606

 
209

Equity in earnings (loss) of affiliates
4,877

 
(4,081
)
Other income, net
430

 
36

Income (loss) before income taxes
14,007

 
(3,391
)
Income (loss) attributable to noncontrolling interests
927

 
(1,407
)
Income (loss) before income taxes attributable to The Andersons, Inc.
$
13,080

 
$
(1,984
)

Operating results for the Ethanol Group increased $15.1 million over the results of the same period last year. Sales and merchandising and service fee revenues increased $103.1 million as a result of an increase in both volume and average price per gallon sold, as well as higher sales of ethanol co-products. In addition, TADE sales began on May 1, 2012, accounting for a portion of the increase from 2012. The increase in cost of sales primarily relates to higher volume of ethanol and co-products sold. Gross profit increased $9.8 million over the first six months of 2012 due to improvements in margins from declining corn costs and higher ethanol demand and price. Ethanol service fee income has also contributed to the increase in gross profit as certain fees earned are based on a percentage of sales.

Operating expenses increased $1.3 million over the six months ended June 30, 2012 primarily due to labor related expenses including performance incentives and the TADE acquisition. Equity in earnings of affiliates increased $9.0 million over the same period in 2012 and relates to income from the investment in three ethanol LLCs. Interest expense and other income did not fluctuate significantly period over period.
Plant Nutrient Group
 
 
Six months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
442,241

 
$
484,157

Cost of sales and merchandising revenues
391,091

 
421,182

Gross profit
51,150

 
62,975

Operating, administrative and general expenses
26,896

 
28,983

Interest expense
1,715

 
1,342

Equity in earnings of affiliates
—

 
3

Other income, net
139

 
1,128

Income before income taxes
$
22,678

 
$
33,781


Operating results for the Plant Nutrient Group decreased $11.1 million from the same period last year. Sales and merchandising revenues decreased $41.9 million due to a decrease in both the average price per ton sold and volume in the wholesale nutrient business. Cost of sales and merchandising revenues decreased by $30.1 million driven by the decline in volume and the average cost per ton sold. Gross profit decreased $11.8 million primarily as a result of lower margin per ton sold and to a lesser extent a decline in volume.

Operating expenses decreased $2.1 million due to a decrease in labor and benefits, including performance incentives and in spite of the expenses of the newly acquired facilities. Other income was higher in the first half of 2012 due to gains recognized

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on assets that were involuntarily converted. There were no significant changes in equity in earnings of affiliates and interest expense.

Rail Group
 
 
Six months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
84,965

 
$
67,905

Cost of sales and merchandising revenues
51,429

 
43,777

Gross profit
33,536

 
24,128

Operating, administrative and general expenses
7,988

 
8,177

Interest expense
2,942

 
2,334

Other income, net
1,648

 
1,600

Income before income taxes
$
24,254

 
$
15,217


Operating results for the Rail Group increased $9.0 million compared to the results of the same period last year. Leasing revenues increased $1.7 million, sales in the repair facilities increased $1.5 million and car sales increased $13.9 million. The increase in revenues is attributable to higher lease rates, as well as having more cars in service. Cost of sales and merchandising revenues increased $7.7 million primarily as a result of the higher volume of car sales.

Gross profit increased $9.4 million compared to the first six months of 2012. Gross profit in the leasing business increased $4.4 million and is attributed to favorable lease rates compared to the same period last year. Gross profit on car sales increased $5.0 million and is due to higher volume of non-recourse lease transactions.

Interest expense increased $0.6 million from the same period last year due to a greater amount of borrowing. Operating expenses and other income did not change significantly period over period.
Turf & Specialty Group
 
 
Six months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
90,331

 
$
88,972

Cost of sales and merchandising revenues
73,992

 
73,483

Gross profit
16,339

 
15,489

Operating, administrative and general expenses
9,845

 
10,356

Interest expense
748

 
668

Other income, net
450

 
490

Income before income taxes
$
6,196

 
$
4,955


Operating results for the Turf & Specialty Group increased $1.2 million over the results of the same period last year. Sales and merchandising revenues increased by $1.4 million and was driven by higher sales volume in the cob business, partially offset by a decrease in the average selling price and decreased volume in the lawn business partly offset by an increase in price. The impact of the acquisition of Mt. Pulaski in the fourth quarter of 2012 added approximately $5.3 in year-to-date revenues. Cost of sales and merchandising revenues only increased $0.5 million over the first half of 2012 due to a 4% decline in the average cost per ton. Gross profit increased $0.8 million due to favorable product mix.

Operating expenses were lower in the first half of 2013 compared to the same period last year despite the expenses added by Mt. Pulaski. There were charges incurred in the first half of 2012 related to insurance claims that did not occur in 2013, in addition to cost savings generated from process efficiencies and waste elimination initiatives that are now being realized. There were no significant changes in interest expense and other income.



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Retail Group
 
 
Six months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
72,003

 
$
74,733

Cost of sales and merchandising revenues
51,922

 
52,544

Gross profit
20,081

 
22,189

Operating, administrative and general expenses
21,558

 
23,436

Interest expense
367

 
353

Other income, net
214

 
279

Loss before income taxes
$
(1,630
)
 
$
(1,321
)

The operating loss for the Retail Group has increased $0.3 million compared to the first six months of 2012. Sales and merchandising revenues decreased $2.7 million due to a decrease in both customer counts and average sale per customer, as well as the closure of the Woodville store in the first quarter of 2013. Cost of sales and merchandising revenues was $0.6 million lower and gross profit decreased $2.1 million primarily as a result of lower store traffic.

Operating expenses decreased $1.9 million mainly as a result of lower labor and benefits and maintenance, which is partly attributable to the closing of the Woodville store as mentioned above. There were no significant changes in interest expense and other income.
Other
 
 
Six months ended
June 30,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
—

 
$
—

Cost of sales and merchandising revenues
—

 
—

Gross profit
—

 
—

Operating, administrative and general expenses
8,611

 
11,360

Interest income
(1,442
)
 
(135
)
Other income, net
915

 
1,068

Loss before income taxes
$
(6,254
)
 
$
(10,157
)

Net corporate operating loss not allocated to business segments decreased $3.9 million to a loss of $6.3 million for the year-to-date period ended June 30, 2013. Operating expenses were lower as there has been no expense related to stock awards as no grants were issued in the first half this year and are not anticipated to be granted until the fourth quarter of 2013. Interest income increased $1.3 million over the same period last year mainly due to mark-to-market gains on interest rate derivative contracts. Other income did not change significantly period over period.

The Company anticipates that its 2013 annual effective rate will be 38.5%. The Company's actual 2012 effective tax rate was 37.1%. The higher effective rate for 2013 is due to decreased benefits related to domestic production activities and the correction made in the first quarter with respect to the accounting for the other comprehensive income portion of the Company's retiree health care plan liability and the Medicare Part D subsidy.



37
Table of Contents

Liquidity and Capital Resources
Working Capital
At June 30, 2013, we had working capital of $308.9 million. The following table presents changes in the components of current assets and current liabilities:
 
(in thousands)
June 30, 2013
 
June 30, 2012
 
Variance
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
75,920

 
$
23,930

 
$
51,990

Restricted cash
872

 
5,644

 
(4,772
)
Accounts receivables, net
216,432

 
205,046

 
11,386

Inventories
444,523

 
597,091

 
(152,568
)
Commodity derivative assets – current
121,789

 
122,010

 
(221
)
Deferred income taxes
2,797

 
18,784

 
(15,987
)
Other current assets
44,936

 
38,535

 
6,401

Total current assets
907,269

 
1,011,040

 
(103,771
)
Current Liabilities:
 
 
 
 
 
Borrowing under short-term line of credit
50,000

 
309,608

 
(259,608
)
Accounts payable for grain
178,017

 
129,979

 
48,038

Other accounts payable
183,971

 
148,497

 
35,474

Customer prepayments and deferred revenue
25,621

 
55,912

 
(30,291
)
Commodity derivative liabilities – current
58,183

 
29,764

 
28,419

Accrued expenses and other current liabilities
57,456

 
51,283

 
6,173

Current maturities of long-term debt
45,096

 
29,647

 
15,449

Total current liabilities
598,344

 
754,690

 
(156,346
)
Working capital
$
308,925

 
$
256,350

 
$
52,575

In comparison to June 30, 2012, current assets decreased primarily as a result of lower inventory levels driven by a decrease in ownership bushels in beans and wheat. See the discussion below on sources and uses of cash for an understanding of the change in cash from prior year. The decrease in restricted cash is due to release of proceeds from the industrial revenue bond utilized for the construction of a grain elevator in Anselmo, Nebraska. The decrease in deferred income tax assets is due to a tax deduction that was taken during the second quarter related to the cash payment made to Cargill for the marketing agreement that ended in May 2013. Current liabilities decreased primarily due to lower borrowings on the short-term line of credit, which fluctuates with the funding of margin calls on commodity contracts. Customer prepayments and deferred revenue have decreased significantly due to the payout of a liability to Cargill for the marketing agreement that was settled in May 2013. These significant decreases were partially offset by increases in accounts payable for grain and other accounts payable. Accounts payable for grain has increased due to additional volume from newly acquired facilities. The increase in accounts payable other than grain is being driven by higher purchases within the Plant Nutrient business and other corporate expenses related to the implementation of an enterprise resource planning system.
Sources and Uses of Cash
Operating Activities
Our operating activities used cash of $59.7 million in the first six months of 2013 compared to net cash used in operating activities of $134.1 million in the first six months of 2012.
Income tax payments were made in the second quarter in the amount of $3.3 million. We expect to make additional payments totaling approximately $25 million for the remainder of 2013.
Investing Activities
Total capital spending for 2013 on property, plant and equipment in our base business, inclusive of information technology spending is expected to be approximately $72.5 million. In addition to spending on conventional property, plant and equipment, we expect to spend $100 million for the purchase of railcars, locomotives and related leases and capitalized modifications of

38
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railcars. We also expect to offset this amount by proceeds from the sales and dispositions of railcars of $85 million. Through June 30, 2013, we invested $56.9 million in the purchase of additional railcars, partially offset by proceeds from sales of $53.2 million.
Financing Activities
We have a significant amount of committed short-term lines of credit available to finance working capital, primarily inventories, margin calls on commodity contracts and accounts receivable. We are party to a borrowing arrangement with a syndicate of banks that provides a total of $878.1 million in borrowings, which includes $28.1 million non-recourse debt of The Andersons Denison Ethanol LLC. Of that total, we had $771.9 million remaining available for borrowing at June 30, 2013. Peak short-term borrowings to date were $315.0 million on January 22, 2013. Typically, our highest borrowing occurs in the spring due to seasonal inventory requirements in our fertilizer and retail businesses.

We paid $0.15 per common share for the dividends paid in January, April, July and October 2012, and $0.16 per common share for the dividends paid in January and April 2013. On May 10, 2013, we declared a cash dividend of $0.16 per common share payable on July 22, 2013 to shareholders of record on July 1, 2013. In the first half of 2013, we did not grant any equity-based compensation awards. During the first six months of 2012, we granted approximately 166 thousand shares to employees and directors under our equity-based compensation plans.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. We are in compliance with all such covenants as of June 30, 2013. 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 railcar and locomotive assets.
Because we are a significant consumer of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on our profitability. In addition, periods of high grain prices and/or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, we receive a return of cash.
We believe our sources of liquidity will be adequate to fund our operations, capital expenditures and payments of dividends through the next twelve months.
Off-Balance Sheet Transactions
Our Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. We lease railcars from financial intermediaries through sale-leaseback transactions, the majority of which involve operating sale leasebacks. Railcars we own or lease from a financial intermediary are generally leased to a customer under an operating lease. We also arrange non-recourse lease transactions under which we sell railcars or locomotives to a financial intermediary and assign the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, we generally provide ongoing railcar maintenance and management services for the financial intermediary, and receive a fee for such services. On most of the railcars and locomotives, we hold an option to purchase these assets at the end of the lease.

The following table describes our railcar and locomotive positions at June 30, 2013:
 
Method of Control
Financial Statement
Units
Owned-railcars available for sale
On balance sheet – current
305

Owned-railcar assets leased to others
On balance sheet – non-current
14,726

Railcars leased from financial intermediaries
Off balance sheet
4,310

Railcars – non-recourse arrangements
Off balance sheet
3,809

Total Railcars
 
23,150

Locomotive assets leased to others
On balance sheet – non-current
52

Locomotives leased from financial intermediaries
Off balance sheet
4

Locomotives – non-recourse arrangements
Off balance sheet
39

Total Locomotives
 
95

In addition, we manage 359 railcars for third-party customers or owners for which we receive a fee.


39
Table of Contents

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, 2012. There were no material changes in market risk, specifically commodity and interest rate risk during the quarter ended June 30, 2013.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer ("Certifying Officers"), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, the Company has investments in certain unconsolidated entities.
As required by Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this quarterly report. As of December 31, 2012, we did not maintain adequate segregation of duties for multiple individuals who had access to create and post journal entries across substantially all of the Company. Specifically, our internal controls over journal entries were not designed effectively to provide reasonable assurance that the entries were appropriately recorded and reviewed for validity, accuracy and completeness for substantially all of the key accounts and disclosures. This control deficiency could result in a material misstatement of the consolidated financial statements that would not be prevented or detected on a timely basis. Accordingly, management determined that this control deficiency constituted a material weakness in internal control over financial reporting as of December 31, 2012, which was not fully remediated as of June 30, 2013.
Based on the foregoing, the management concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2013.
Plan for Remediation of Material Weakness
Management is making progress towards remediation of the material weakness described above:
1.
Implementing a sufficiently-designed control that is intended to ensure that all journal entries are reviewed by an appropriate person.
2.
Evaluating and modifying, as necessary, the access of our existing users to post journal entries and the journal entry types that each user is authorized to utilize.
3.
Enhancing information technology controls related to the future granting and on-going monitoring of our users' access to post journal entries.
4.
As applicable legacy information technology systems are replaced with our implementation of SAP (expected to occur in phases over the next several years), we plan on utilizing capabilities within SAP that will restrict the ability for an individual to create and post an entry without review.
 
Management believes the foregoing efforts will effectively remediate the material weakness. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine to take additional measures to address the control deficiency or determine to modify the remediation plan described above.
Changes in Internal Control over Financial Reporting
Other than the actions taken to begin remediation of the previously reported material weakness related to journal entries described above, there have been no changes in the Company's internal controls over financial reporting during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.


40
Table of Contents


Part II. Other Information

Item 1. Legal Proceedings
We have received, and are cooperating fully with, a request for information from the United States Environmental Protection Agency (“U.S. EPA”) regarding the history of our grain and fertilizer facility along the Maumee River in Toledo, Ohio. The U.S. EPA is investigating the possible introduction into the Maumee River of hazardous materials potentially leaching from rouge piles deposited along the riverfront by glass manufacturing operations that existed in the area prior to our initial acquisition of the land in 1960. We have on several prior occasions cooperated with local, state and federal regulators to install or improve drainage systems to contain storm water runoff and sewer discharges along our riverfront property to minimize the potential for such leaching. Other area land owners and the successor to the original glass making operations have also been contacted by the U.S. EPA for information. No claim or finding has been asserted thus far.
We are also currently subject to various claims and suits arising in the ordinary course of business, which include environmental issues, employment claims, contractual disputes, and defensive counter claims. We accrue liabilities where litigation losses are deemed probable and estimable. We believe it is unlikely that the results of our current legal proceedings, even if unfavorable, will be materially different from what we currently have accrued. There can be no assurance, however, that any claims or suits arising in the future, whether taken individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations.

Item 1A. Risk Factors
Our operations are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this Form 10-Q and could have a material adverse impact on our financial results. These risks can be impacted by factors beyond our control as well as by errors and omissions on our part. The significant factors known to us that could materially adversely affect our business, financial condition or operating results are described in the 2012 10-K (Item 1A).

Item 6. Exhibits
(a) Exhibits
 
 
 
 
No.
  
Description
 
 
12
  
Computation of Ratio of Earnings to Fixed Charges
 
 
31.1
  
Certification of the Chairman and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a)
 
 
31.2
  
Certification of the Chief Financial Officer under Rule 13(a)-14(a)/15d-14(a)
 
 
32.1
  
Certifications Pursuant to 18 U.S.C. Section 1350
 
 
 
101
 
Financial Statements from the interim report on Form 10-Q of The Andersons, Inc. for the period ended June 30, 2013, formatted in XBRL: (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statement of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.


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Table of Contents

Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
THE ANDERSONS, INC.
(Registrant)
 
 
Date: August 9, 2013
 
By /s/ Michael J. Anderson
 
 
Michael J. Anderson
 
 
Chairman and Chief Executive Officer (Principal Executive Officer)
 
 
Date: August 9, 2013
 
By /s/ John Granato
 
 
John Granato
 
 
Chief Financial Officer (Principal Financial Officer)
 
 


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Table of Contents

Exhibit Index
The Andersons, Inc.
 
 
 
 
No.
  
Description
 
 
12
  
Computation of Ratio of Earnings to Fixed Charges
 
 
31.1
  
Certification of the Chairman and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a)
 
 
31.2
  
Certification of the Chief Financial Officer under Rule 13(a)-14(a)/15d-14(a)
 
 
32.1
  
Certifications Pursuant to 18 U.S.C. Section 1350
 
 
 
101
 
Financial Statements from the interim report on Form 10-Q of The Andersons, Inc. for the period ended June 30, 2013, formatted in XBRL: (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statement of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.


43