SEC Info - Andersons, Inc. - ‘10-K’ for 12/31/19

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		Alternative Formats (Word, et al.) Business Canada Certain Relationships and Related Transactions, and Director Independence Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Comprehensive Income Consolidated Statements of Equity Consolidated Statements of Operations Consolidated Valuation and Qualifying Accounts Controls and Procedures Deloitte & Touche LLP / KPMG LLP / PricewaterhouseCoopers LLP -- Canada Directors, Executive Officers and Corporate Governance Executive Compensation Exhibits and Financial Statement Schedules Financial Statements and Supplementary Data Financial Statement Schedule II Form 10-K Summary Item 8 Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Mine Safety Note 15 Note 2 Note 3 Note 4 Note 5 Note 6 Note 8 Notes to Consolidated Financial Statements Other Information Principal Accountant Fees and Services Properties Quantitative and Qualitative Disclosures about Market Risk Reports of Independent Registered Public Accounting Firms -- Deloitte & Touche LLP / KPMG LLP / PricewaterhouseCoopers LLP -- Canada Risk Factors Schedule II -- Consolidated Valuation and Qualifying Accounts Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Selected Financial Data Signatures Unresolved Staff Comments
1	1st Page – Filing Submission
"	Item 1. Business
"	Item 1A. Risk Factors
"	Item 1B. Unresolved Staff Comments
"	Item 2. Properties
"	Item 3. Legal Proceedings
"	Item 4. Mine Safety
"	Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
"	Item 6. Selected Financial Data
"	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 7A. Quantitative and Qualitative Disclosures about Market Risk
"	Item 8. Financial Statements and Supplementary Data
"	Item 8
"	Reports of Independent Registered Public Accounting Firms -- Deloitte & Touche LLP / KPMG LLP / PricewaterhouseCoopers LLP -- Canada
"	Consolidated Balance Sheets
"	Consolidated Statements of Operations
"	Consolidated Statements of Comprehensive Income
"	Consolidated Statements of Cash Flows
"	Consolidated Statements of Equity
"	Notes to Consolidated Financial Statements
"	Note 2
"	Note 3
"	Note 4
"	Note 5
"	Note 6
"	Note 8
"	Note 15
"	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
"	Item 9A. Controls and Procedures
"	Item 9B. Other Information
"	Item 10. Directors, Executive Officers and Corporate Governance
"	Item 11. Executive Compensation
"	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
"	Item 13. Certain Relationships and Related Transactions, and Director Independence
"	Item 14. Principal Accountant Fees and Services
"	Item 15. Exhibits and Financial Statement Schedules
"	Item 16. Form 10-K Summary
"	Schedule II -- Consolidated Valuation and Qualifying Accounts
"	Financial Statement Schedule II
"	Signatures

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM i 10-K



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

For the fiscal year ended December 31, 2019 or



i ☐	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: i 000-20557

i THE ANDERSONS, INC.

(Exact name of the registrant as specified in its charter)



i Ohio		i 34-1562374
(State of incorporation or organization)		(I.R.S. Employer Identification No.)

i 1947 Briarfield Boulevard
i Maumee	i Ohio	i 43537
(Address of principal executive offices)		(Zip Code)

( i 419) i 893-5050

(Telephone Number)



Securities registered pursuant to Section 12(b) of the Act:
Title of each class:	Trading Symbol	Name of each exchange on which registered:
i Common stock, $0.00 par value, $0.01 stated value	i ANDE	i The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. i Yes ý No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ i No ý

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. i Yes ý No ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). i Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



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

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

The aggregate market value of the registrant's voting stock which may be voted by persons other than affiliates of the registrant was $ i 837.0 million as of June 30, 2019, computed by reference to the last sales price for such stock on that date as reported on the Nasdaq Global Select Market. The registrant had approximately i 32.8 million common shares outstanding, no par value, at February 14, 2020.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 8, 2020, are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year to which this report relates.

THE ANDERSONS, INC.

Table of Contents



	Page No.
PART I.
Item 1. Business	3
Item 1A. Risk Factors	7
Item 1B. Unresolved Staff Comments	13
Item 2. Properties	13
Item 3. Legal Proceedings	15
Item 4. Mine Safety	15
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6. Selected Financial Data	19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A. Quantitative and Qualitative Disclosures about Market Risk	31
Item 8. Financial Statements and Supplementary Data	32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	91
Item 9A. Controls and Procedures	91
Item 9B. Other Information	93
PART III.
Item 10. Directors, Executive Officers and Corporate Governance	93
Item 11. Executive Compensation	93
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	93
Item 13. Certain Relationships and Related Transactions, and Director Independence	93
Item 14. Principal Accountant Fees and Services	93
PART IV.
Item 15. Exhibits and Financial Statement Schedules	94
Item 16. Form 10-K Summary	97
Signatures	99

Part I.

Item 1. Business

Company Overview

The Andersons, Inc. (the "Company") is a diversified company rooted in agriculture. Founded in Maumee, Ohio in 1947, the Company conducts business across North America in the trade, ethanol, plant nutrient and rail sectors.

Segment Descriptions

The Company's operations are classified into four reportable business segments: Trade, Ethanol, Plant Nutrient, and Rail. Each of these segments is organized based upon the nature of products and services offered. See Note 13 to the Consolidated Financial Statements in Item 8 for information regarding business segments.

Trade Group

The Trade Group (formerly the Grain Group), through the completion of the Lansing Trade Group ("LTG") acquisition in the current year, has evolved into a diversified business focusing on logistics and merchandising across a wide range of commodities. The group specializes in the movement of physical commodities such as whole grains, grain products, feed ingredients, frac sand, domestic fuel products, and other agricultural commodities. The business also operates grain elevators across the U.S. and Canada where income is earned on commodities bought and sold through the elevator, commodities that are purchased and conditioned for resale, and commodities that are held in inventory until a future period, earning space income. Space income consists of appreciation or depreciation in the basis value of commodities held and represents the difference between the cash price of a commodity in one of the Company's facilities and an exchange traded futures price (“basis”); appreciation or depreciation between the future exchange contract months (“spread”); and commodities stored for others upon which storage fees are earned. The Trade Group business also offers a number of unique grain marketing, risk management and corn origination services to its customers and affiliated ethanol facilities for which it collects fees.

Sales are negotiated by the Company's merchandising staff as commodity prices are not predetermined. As previously mentioned the Trade group has diversified the physical commodities that are sold, however, the principal commodities sold by the Company are corn, wheat and soybeans which are consistent with the prior year. Approximately 72% of commodity sales by the Company in 2019 were purchased by U.S. grain processors and feeders, and approximately 28% were exported. Most of the Company's exported commodity sales are made through intermediaries while some commodities are shipped directly to foreign countries, mainly Canada. The Company ships grain from its facilities by rail, truck, or boat. Rail shipments are made primarily to grain processors and feeders with some rail shipments made to exporters on the Gulf of Mexico or east coast. Boat shipments are from the Port of Toledo or the Port of Houston. In addition, commodities are transported via truck for direct ship transactions in which producers sell grain to the Company, but delivered directly to the end user.

The Company's trade operations rely principally on forward purchase contracts with producers, dealers and commercial elevators to ensure an adequate supply of commodities to the Company's facilities throughout the year. The Company makes commodity purchases at prices referenced to regulated commodity exchanges.

The Company competes in the sale of commodities with other public and private grain brokers, elevator operators and farmer owned cooperative elevators. Some of the Company's competitors are also its customers. Competition is based primarily on price, service and reliability. Because the Company generally buys in smaller lots, its competition for the purchase of grain is generally local or regional in scope, although there are some large national and international companies that maintain regional grain purchase and storage facilities. Significant portions of grain bushels purchased and sold are made using forward contracts.

The grain handling business is seasonal in nature in that the largest portion of the principal grains are harvested and delivered from the farm and commercial elevators typically in July for wheat and September through November for corn and beans, although a significant portion of the principal grains are bought, sold and handled throughout the year.

Fixed price purchase and sale commitments as well as commodities held in inventory expose the Company to risks related to adverse changes in market prices. Grain prices are typically comprised of two components, futures prices on regulated commodity exchanges and local basis adjustments. The Company manages the futures price risk by entering into exchange-traded futures and option contracts with regulated commodity exchanges. The contracts are economic hedges of price risk but are not designated or accounted for as hedging instruments. These regulated commodity exchanges maintain futures markets for the grains merchandised by the Company. Futures prices are determined by worldwide supply and demand.

The Company's grain risk management practices are designed to reduce the risk of changing commodity prices. In that regard, such practices also limit potential gains from further changes in market prices. The Company has policies that provide key controls over its risk management practices. These policies include a description of the objectives of the programs and review of daily position limits by key management outside of the trading function along with other internal controls. The Company monitors current market conditions and may expand or reduce the purchasing program in response to changes in those conditions. In addition, the Company monitors its counterparties on a regular basis for credit worthiness, defaults and non-delivery.

Purchases of commodities can be made the day the product is delivered to a terminal or via a forward contract made prior to actual delivery. Sales of commodities generally are made by contract for delivery in a future period. When the Company purchases commodities at a fixed price or at a price where a component of the purchase price is fixed via reference to a futures price on a regulated commodity exchange, it also enters into an offsetting sale of a futures contract on the regulated commodity exchange. Similarly, when the Company sells commodities at a fixed price, the sale is offset with the purchase of a futures contract on the regulated commodity exchange. At the close of business each day, inventory and open purchase and sale contracts as well as open futures and option positions are marked-to-market. Gains and losses in the value of the Company's ownership positions due to changing market prices are netted with, and substantially offset in the statement of operations by, losses and gains in the value of the Company's futures positions.

When a futures contract is entered into, an initial margin deposit must be sent to the regulated commodity exchange. The amount of the margin deposit is set by the regulated commodity exchange and varies by commodity. If the market price of a futures contract moves in a direction that is adverse to the Company's position, an additional margin deposit, called a maintenance margin, is required by regulated commodity exchanges. Subsequent price changes could require additional maintenance margin deposits or result in the return of maintenance margin deposits by the regulated commodity exchange. Significant increases in market prices, such as those that occur when grain supplies are affected by unfavorable weather conditions and/or when increases in demand occur, can have an effect on the Company's liquidity and, as a result, require it to maintain appropriate short-term lines of credit. The Company may utilize regulated commodity exchange option contracts to limit its exposure to potential required margin deposits in the event of a rapidly rising market.

The Company has a lease and marketing agreement with Cargill, Incorporated for Cargill's Maumee and Toledo, Ohio grain handling and storage facilities. As part of the agreement, Cargill holds certain marketing rights to grain in the Cargill-owned facilities as well as the adjacent Company-owned facilities in Maumee and Toledo. The marketing agreement contains a profit-sharing provision whereby cumulative earnings generated from the grain facilities are contractually shared. As of December 31, 2019, the lease of the Cargill-owned facilities covers approximately 4%, or 8.8 million bushels, of the Company's total storage space.

Ethanol Group

The Ethanol Group produces, purchases and sells ethanol, offers facility operations, risk management, and ethanol and corn oil marketing services to the ethanol plants it invests in and operates. Through the first nine months of 2019 the Ethanol Group held ownership interests in three limited liability companies (“the ethanol LLCs” or “LLCs”), each of which owned an ethanol plant that was operated by the Company's Ethanol Group. On October 1, 2019, the Ethanol Group entered into an agreement to merge the LLCs and the Company's wholly-owned subsidiary, The Andersons Denison Ethanol LLC into a new legal entity, The Andersons Marathon Holdings LLC ("TAMH"). As a result of the merger, the Company and Marathon Petroleum Corporation ("Marathon") own 50.1% and 49.9% of TAMH equity, respectively. The transaction resulted in the consolidation of TAMH’s results in the Company's financial statements effective October 1, 2019. Prior to October 1, 2019 the results of the Ethanol LLCs were accounted for under the equity method of accounting. The four ethanol plants within TAMH are located in Iowa, Indiana, Michigan, and Ohio. These plants have a combined nameplate capacity of 405 million gallons of ethanol.

The Company also owns 51% of ELEMENT, LLC ("ELEMENT") and ICM, Inc. ("ICM") owns the remaining 49% interest. In the current year ELEMENT completed the construction of a 70 million-gallon-per-year bio-refinery which began limited production in the third quarter of 2019. ICM operates the facility under a management contract and managed the initial construction of the facility, while the Company provides corn origination, ethanol marketing, and risk management services. The Company fully consolidates ELEMENT's results in the Company's financial statements.

Plant Nutrient Group

The Plant Nutrient Group is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients, corncob-based products, and pelleted lime and gypsum products in the U.S. Corn Belt and Puerto Rico. The group provides warehousing, packaging and manufacturing services to basic nutrient producers and other distributors. The group 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, and water treatment and dust abatement products.

In its plant nutrient businesses, the Company competes with regional and local cooperatives, wholesalers and retailers, predominantly publicly owned manufacturers and privately-owned retailers, wholesalers and importers. Some of these competitors are also suppliers and have considerably larger resources than the Company. Competition in the nutrient business is based largely on depth of product offering, price, location and service. Sales and warehouse shipments of agricultural nutrients are heaviest in the spring and fall.

Wholesale Nutrients - The Wholesale Nutrients business manufactures, stores, and distributes dry and liquid agricultural nutrients, and pelleted lime and gypsum products annually. The major nutrient products sold by the business principally contain nitrogen, phosphate, potassium and sulfur. Product lines include primary nutrients which are typically bought and sold as commodities and specialty products which support more sustainable farming practices and command higher margins. The distribution and sales channels for both types of nutrients are shared within the Wholesale Nutrients business.

Farm Centers - The Farm Centers offer a variety of essential crop nutrients, crop protection chemicals and seed products in addition to application and agronomic services to commercial and family farmers. Soil and tissue sampling along with global satellite assisted services provide for pinpointing crop or soil deficiencies and prescriptive agronomic advice is provided to farmers.

Cob Products - Corncob-based products are manufactured for a variety of uses including laboratory animal bedding and private-label cat litter, as well as absorbents, blast cleaners, carriers and polishers. The products are distributed throughout the United States and Canada and into Europe and Asia. The principal sources for corncobs are seed corn producers.

Lawn Products - Proprietary professional lawn care products are produced for the golf course and professional turf care markets, serving both U.S. and international customers. These products are sold both directly and through distributors to golf courses and lawn service applicators. The Company also performs contract manufacturing services to sell fertilizer and control products to various markets.

Rail Group

The Company's Rail Group leases, repairs, and sells various types of railcars, locomotives and barges. In addition, the Rail Group offers fleet management services to private railcar owners.

The Company has a diversified fleet of car types (boxcars, gondolas, covered and open top hopper cars, tank cars and pressure differential cars), locomotives and barges serving a broad customer base. The Company operates in both the new and used car markets, allowing the Company to diversify its fleet both in terms of car types, industries and age of cars, as well as repairing and refurbishing used cars for specific markets and customers.

A significant portion of the railcars, locomotives and barges managed by the Company are included on the balance sheet as long-lived assets. The others are either included as operating leases (with the Company leasing assets from financial intermediaries and leasing those same assets to the end-users) or non-recourse arrangements (in which the Company is not subject to any lease arrangement related to the assets but provides management services to the owner of the assets). The Company generally holds purchase options on most assets owned by financial intermediaries. We are under contract to provide maintenance services for many of the Rail Group assets that we own or manage. Refer to the Properties section within Item 2 of Management's Discussion and Analysis for a breakdown of our railcar, locomotive and barge positions at December 31, 2019.

In the case of the Company's leased Rail Group assets, the Company's risk management philosophy is to match-fund the lease commitments where possible. Match-funding (in relation to lease transactions) means matching the terms of the financial intermediary funding arrangement with the lease terms of the customer in which the Company is both lessee and sublessor. If the Company is unable to match-fund, it will attempt to negotiate an early buyout provision within the funding arrangement to match the underlying customer lease. The Company does not attempt to match-fund lease commitments for Rail Group assets that are on its balance sheet.

Competition for marketing and fleet maintenance services is based primarily on price, service ability, and access to both used equipment and third-party financing. Repair facility competition is based primarily on price, quality and location.

Other

The Company's “Other” activities include corporate income, a small corporate venture fund and expense and cost for functions that provide support and services to the operating segments. The results include expenses and benefits not allocated to the operating segments, including a portion of our ERP project. The results of our former retail business, which was closed in 2017, are also included in "Other" activities.

Employees

The Andersons offers a broad range of full-time and part-time career opportunities. Each position in the Company is important to its success, and the Company recognizes the worth and dignity of every individual. The Company strives to treat each person with respect and utilize his or her unique talents. At December 31, 2019, the Company had 2,247 full-time and 73 part-time or seasonal employees.

Government Regulation

Grain sold by the Company must conform to official grade standards imposed under a federal system of grain grading and inspection administered by the United States Department of Agriculture (“USDA”).

The production levels, markets and prices of the grains that the Company merchandises are affected by United States government programs, which include acreage control and price support programs of the USDA. In regard to our investments in ethanol production facilities, the U.S. government has mandated a ten percent blend for motor fuel gasoline sold.

The U.S. Food and Drug Administration (“FDA”) has developed bioterrorism prevention regulations for food facilities, which require that the Company registers its grain operations with the FDA, provide prior notice of any imports of food or other agricultural commodities coming into the United States and maintain records to be made available upon request that identifies the immediate previous sources and immediate subsequent recipients of its grain commodities.

The Company, like other companies engaged in similar businesses, is subject to a multitude of federal, state and local environmental protection laws and regulations including, but not limited to, laws and regulations relating to air quality, water quality, pesticides and hazardous materials. The provisions of these various regulations could require modifications of certain of the Company's existing facilities and could restrict the expansion of future facilities or significantly increase the cost of their operations. Compliance with environmental laws and regulations did not materially affect the Company's earnings or competitive position in 2019.

Available Information

The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the Securities and Exchange Commission (the “SEC”). The Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements and other information with the SEC. Such reports and other information filed by the Company with the SEC are available free of charge at https://theandersonsinc.gcs-web.com/financial-information/sec-filings when such reports are available on the SEC’s website. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The Company periodically provides other information for investors on its corporate website, www.andersonsinc.com, and its investor relations website, www.theandersonsinc.gcs-web.com. This includes press releases and other information about financial performance, information on corporate governance and details related to the Company’s annual meeting of shareholders. The information contained on the websites referenced in this Form 10-K is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only.

Item 1A. Risk Factors

The Company's operations are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this Form 10-K 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 following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained elsewhere in this Form 10-K.

Certain of our business segments are affected by the supply and demand of commodities and are sensitive to factors outside of our control. Adverse price movements could negatively affect our profitability and results of operations.

Our Trade, Ethanol and Plant Nutrient businesses buy, sell and hold inventories of agricultural input and output commodities, some of which are readily traded on commodity futures exchanges. Unfavorable weather conditions, both local and worldwide, as well as other factors beyond our control, can affect the supply and demand of these commodities and expose us to liquidity pressures to finance hedges in the commodity business in rapidly rising markets. In our Plant Nutrient business, changes in the supply and demand of these commodities can also affect the value of inventories that we hold, as well as the price of raw materials as we are unable to effectively hedge these commodities. Increased costs of inventory and prices of raw material would decrease our profit margins and adversely affect our results of operations.

Corn - The principal raw material used to produce ethanol and co-products is corn. As a result, an increase in the price of corn in the absence of a corresponding increase in petroleum-based fuel prices will typically decrease ethanol margins thus adversely affecting financial results in the Ethanol Group. At certain levels, corn prices may make ethanol uneconomical to produce for fuel markets. The price of corn is influenced by weather conditions and other factors affecting crop yields, shifts in acreage allocated to corn versus other major crops and general economic and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. The significance and relative effect of these factors on the price of corn is difficult to predict. Any event that tends to negatively affect the supply of corn, such as adverse weather or crop disease, could increase corn prices and adversely impact income. In addition, we may also have difficulty, from time to time, in physically sourcing corn on economical terms due to supply shortages. High costs or shortages could require us to suspend ethanol operations until corn is available on economical terms, which would have an adverse effect on operating results.

Commodities - While we attempt to manage the risk associated with agricultural commodity price changes for our commodity inventory positions with derivative instruments, including purchase and sale contracts, we are unable to offset 100% of the price risk of each transaction due to timing, availability of futures and options contracts and third-party credit risk. Furthermore, there is a risk that the derivatives we employ will not be effective in offsetting all of the risks that we are trying to manage. This can happen when the derivative and the underlying value of grain inventories and purchase and sale contracts are not perfectly matched. Our commodity derivatives, for example, do not perfectly correlate with the basis component of our commodity inventory and contracts. (Basis is defined as the difference between the local cash price of a commodity and the corresponding exchange-traded futures price.) Differences can reflect time periods, locations or product forms. Although the basis component is smaller and generally less volatile than the futures component of our grain market price, basis moves on a large commodity position can significantly impact the profitability of the Trade business.

Our futures, options and over-the-counter contracts are subject to margin calls. If there are large movements in the commodities market, we could be required to post significant levels of margin deposits, which would impact our liquidity. There is no assurance that the efforts we have taken to mitigate the impact of the volatility of the prices of commodities upon which we rely will be successful and any sudden change in the price of these commodities could have an adverse effect on our business and results of operations.

Natural gas - We rely on third parties for our supply of natural gas, which is consumed in the drying of wet grain, manufacturing of certain lawn products, pelleted lime and gypsum, and manufacturing of ethanol. The prices for and availability of natural gas are subject to market conditions. These market conditions often are affected by factors beyond our control such as higher prices resulting from colder than average weather and overall economic conditions. Significant disruptions in the supply of natural gas could impair the operations of the ethanol facilities. Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect future results of operations and financial position.

Gasoline and oil - We market ethanol as a fuel additive to reduce vehicle emissions from gasoline, as an octane enhancer to improve the octane rating of gasoline with which it is blended and as a substitute for petroleum-based gasoline. As a result, ethanol prices will be influenced by the supply and demand for gasoline and oil and our future results of operations and financial position may be adversely affected if gasoline and oil demand or price changes.

Frac Sand - In our Trade business we own a frac sand processing, logistics, and transloading operation. Frac sand is a proppant used in the completion and re-completion of natural gas and oil wells through hydraulic fracturing. Frac sand is the most commonly used proppant and is less expensive than ceramic proppant, which is also used in hydraulic fracturing to stimulate and maintain oil and natural gas production. A significant shift in demand from frac sand to other proppants, such as ceramic proppants, could have a material adverse effect on our financial condition and results of operations. The development and use of other effective alternative proppants, or the development of new processes to replace hydraulic fracturing altogether, could also cause a decline in demand for the frac sand we process and transload and could have a material adverse effect on our financial condition and results of operations.

Potash, phosphate and nitrogen - Raw materials used by the Plant Nutrient business include potash, phosphate and nitrogen, for which prices can be volatile and are driven by global and local supply and demand factors. Significant increases in the price of these commodities may result in lower customer demand and higher than optimal inventory levels. In contrast, reductions in the price of these commodities may create lower of cost or net realizable value adjustments to inventories.

Some of our business segments operate in highly regulated industries. Changes in government regulations or trade association policies could adversely affect our results of operations.

Many of our business segments are subject to government regulation and regulation by certain private sector associations, compliance with which can impose significant costs on our business. Other regulations are applicable generally to all our businesses and corporate functions, including, without limitation, those promulgated under the Internal Revenue Code, the Affordable Care Act, the Employee Retirement Income Security Act (ERISA) and other employment and health care related laws, federal and state securities laws, and the US Patriot Act. Failure to comply with such regulations can result in additional costs, fines or criminal action.

A significant part of our operations is regulated by environmental laws and regulations, including those governing the labeling, use, storage, discharge and disposal of hazardous materials. Because we use and handle hazardous substances in our businesses, changes in environmental requirements or an unanticipated significant adverse environmental event could have an adverse effect on our business. We cannot assure that we have been, or will at all times be, in compliance with all environmental requirements, or that we will not incur costs or liabilities in connection with these requirements. Private parties, including current and former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us, or contained in our products. We are also exposed to residual risk because some of the facilities and land which we have acquired may have environmental liabilities arising from their prior use. In addition, changes to environmental regulations may require us to modify our existing plant and processing facilities which could significantly increase the cost of those operations.

Trade and Ethanol businesses - In our Trade and Ethanol businesses, agricultural production and trade flows can be affected by government programs and legislation. Production levels, markets and prices of the commodities we merchandise can be affected by U.S. government programs, which include acreage controls and price support programs administered by the USDA and required levels of ethanol in gasoline through the Renewable Fuel Standards as administered by the EPA. Other examples of government policies that can have an impact on our business include tariffs, taxes, duties, subsidies, import and export restrictions, outright embargoes and price controls on agricultural commodities. Because a portion of our commodity sales are to exporters, the imposition of export restrictions and other foreign countries' regulations could limit our sales opportunities and create additional credit risk associated with export brokers if shipments are rejected at their destination.

International trade disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. Trade disputes can lead to the implementing of tariffs on commodities in which we merchandise or otherwise use in our operations. This can lead to significant volatility in commodity prices, disruptions in historical trade flows and shifts in planting patterns in the Company's geographic footprint, which would present challenges and uncertainties for our business. The imposition of new tariffs or uncertainty around future tariff levels can cause significant fluctuations in the futures and basis levels of agricultural commodities, impacting our earnings. We cannot predict the effects that future trade policy or the terms of any negotiated trade agreements and their impact on our business.

Plant Nutrient - Our Plant Nutrient business manufactures certain agricultural nutrients and uses potentially hazardous materials. All products containing pesticides, fungicides and herbicides must be registered with the EPA and state regulatory bodies before they can be sold. The inability to obtain or the cancellation of such registrations could have an adverse impact on our business. In the past, regulations governing the use and registration of these materials have required us to adjust the raw material content of our products and make formulation changes. Future regulatory changes may have similar consequences. Regulatory agencies, such as the EPA, may at any time reassess the safety of our products based on new scientific knowledge or other factors. If it were determined that any of our products were no longer considered to be safe, it could result in the amendment or withdrawal of existing approvals, which, in turn, could result in a loss of revenue, cause our inventory to become obsolete or give rise to potential lawsuits against us. Consequently, changes in existing and future government or trade association polices may restrict our ability to do business and cause our financial results to suffer.

Rail - Our Rail business is subject to regulation by the American Association of Railroads and the Federal Railroad Administration. These agencies regulate rail operations with respect to health and safety matters. New regulatory rulings could negatively impact financial results through higher maintenance costs or reduced economic value of railcar assets.

The Rail business is also subject to risks associated with the demands and restrictions of the Class I railroads, a group of rail companies owning a high percentage of the existing rail lines. These companies exercise a high degree of control over whether private railcars can be allowed on their lines and may reject certain railcars or require maintenance or improvements to the railcars. This presents risk and uncertainty for our Rail business and it can increase maintenance costs. In addition, a shift in the railroads' strategy to investing in new rail cars and improvements to existing railcars, instead of investing in locomotives and infrastructure, could adversely impact our business by causing increased competition and creating an oversupply of railcars. Our rail fleet consists of a range of railcar types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives. However, a large concentration of a particular type of railcar could expose us to risk if demand were to decrease for that railcar type. Failure on our part to identify and assess risks and uncertainties such as these could negatively impact our business.

Demand for rail cars closely follows general economic activity and may be adversely affected by recession and general economic or sector related slowdowns.

We are required to carry significant amounts of inventory across all of our businesses. If a substantial portion of our inventory becomes damaged or obsolete, its value would decrease, and our profit margins would suffer.

We are exposed to the risk of a decrease in the value of our inventories due to a variety of circumstances in all of our businesses. For example, within our Trade and Ethanol businesses, there is the risk that the quality of our inventory could deteriorate due to damage, moisture, insects, disease or foreign material. If the quality of our inventory were to deteriorate below an acceptable level, the value of our inventory could decrease significantly. In our Plant Nutrient business, planted acreage, and consequently the volume of fertilizer and crop protection products applied, is partially dependent upon government programs and the producer's perception of demand. Technological advances in agriculture, such as genetically engineered seeds that resist disease and insects, or that meet certain nutritional requirements, could also affect the demand for our crop nutrients and crop protection products. Either of these factors could render some of our inventory obsolete or reduce its value. Within our rail repair business, major design improvements to loading, unloading and transporting of certain products can render existing (especially old) equipment obsolete.

Our substantial indebtedness could negatively affect our financial condition, decrease our liquidity and impair our ability to operate the business.

If cash on hand is insufficient to pay our obligations or margin calls as they come due at a time when we are unable to draw on our credit facility, it could have an adverse effect on our ability to conduct our business. Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is dependent on various factors. These factors include general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Certain of our long-term borrowings include provisions that require minimum levels of working capital and equity and impose limitations on additional debt. Our ability to satisfy these provisions can be affected by events beyond our control, such as the demand for and the fluctuating price of commodities. Although we are and have been in compliance with these provisions, noncompliance could result in default and acceleration of long-term debt payments.

We face increasing competition and pricing pressure from other companies in our industries. If we are unable to compete effectively with these companies, our sales and profit margins would decrease, and our earnings and cash flows would be adversely affected.

The markets for our products in each of our business segments are highly competitive. While we have substantial operations in our region, some of our competitors are significantly larger, compete in wider markets, have greater purchasing power, and have considerably larger financial resources. We also may enter into new markets where our brand is not recognized and in which we do not have an established customer base. Competitive pressures in all of our businesses could affect the price of, and customer demand for, our products, thereby negatively impacting our profit margins and resulting in a loss of market share.

Our Trade and Ethanol businesses use derivative contracts to reduce volatility in the commodity markets. Non-performance by the counter-parties to those contracts could adversely affect our future results of operations and financial position.

A significant amount of purchases and sales within the Trade and Ethanol segment are made through forward contracting. In addition, the Company uses exchange traded and, to a lesser degree, over-the-counter contracts to reduce volatility in changing commodity prices. A significant adverse change in commodity prices could cause a counter-party to one or more of our derivative contracts to not perform on its obligation.

Adverse weather conditions, including as a result of climate change, may adversely affect the availability, quality and price of agricultural commodities and agricultural commodity products, as well as our operations and operating results.

Adverse weather conditions have historically caused volatility in the agricultural commodity industry and consequently in our operating results by causing crop failures or significantly reduced harvests, which may affect the supply and pricing of the agricultural commodities that we sell and use in our business, reduce demand for our fertilizer products and negatively affect the creditworthiness of agricultural producers who do business with us. A significant portion of the Company's assets are exposed to conditions in the Eastern Corn Belt. In this region, adverse weather during the fertilizer application, planting, and harvest seasons can have negative impacts on our Trade, Ethanol and Plant Nutrient businesses. Higher basis levels or adverse crop conditions in the Eastern Corn Belt can increase the input costs or lower the market value of our products relative to other market participants that do not have the same geographic concentration.

Additionally, the potential physical impacts of climate change are uncertain and may vary by region. These potential effects could include changes in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities, and changing temperature levels that could adversely impact our costs and business operations, the location, costs and competitiveness of agricultural commodity production and related storage and processing facilities and the supply and demand for agricultural commodities. These effects could be material to our results of operations, liquidity or capital resources.

We rely on a limited number of suppliers for certain of our raw materials and other products and the loss of one or several of these suppliers could increase our costs and have a material adverse effect on any one of our business segments.

We rely on a limited number of suppliers for certain of our raw materials and other products. If we were unable to obtain these raw materials and products from our current vendors, or if there were significant increases in our supplier's prices, it could significantly increase our costs and reduce our profit margins.

We are subject to global and regional economic downturns and related risks.

The level of demand for our products is affected by global and regional demographic and macroeconomic conditions, including population growth rates and changes in standards of living. A significant downturn in global economic growth, or recessionary conditions in major geographic regions, may lead to reduced demand for agricultural commodities and food products, which could adversely affect our business and results of operations. The pace of economic improvement is uncertain, and there can be no assurance that economic and political conditions will not continue to affect market and consumer confidence or deteriorate further in the near term. Additionally, a slowdown in China's economy over a prolonged period could lead to reduced global demand for agricultural commodities. For example, in December 2019, a novel strain of coronavirus surfaced in Wuhan, China. Although cases have been confirmed in other countries, the outbreak has been largely concentrated in China where certain businesses have suspended or terminated operations, a portion of the population has been subject to self-imposed or mandatory quarantines and economic activity has slowed. To the extent that such economic and political conditions negatively impact consumer and business confidence and consumption patterns or volumes, our business and results of operations could be significantly and adversely affected.

The Company may not be able to effectively integrate businesses it acquires.

We continuously look for opportunities to enhance our existing businesses through strategic acquisitions. The process of integrating an acquired business into our existing business and operations may result in unforeseen operating difficulties and expenditures as well as require a significant amount of management resources. There is also the risk that our due diligence efforts may not uncover significant business flaws or hidden liabilities. In addition, we may not realize the anticipated benefits of an acquisition and they may not generate the anticipated financial results. Additional risks may include the inability to effectively integrate the operations, products, technologies and personnel of the acquired companies. The inability to maintain uniform standards, controls, procedures and policies would also negatively impact operations.

If our goodwill or amortizable intangible assets become impaired, then we could be required to record a significant charge to earnings.

GAAP requires us to test for goodwill impairment at least annually. In addition, we review our goodwill and amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include prolonged declines in stock price, market capitalization or cash flows, and slower growth rates in our industry. Depending on the results of our review, we could be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets were determined, negatively impacting our results of operations.

Our business involves considerable safety risks. Significant unexpected costs and liabilities would have an adverse effect on our profitability and overall financial position.

Due to the nature of some of the businesses in which we operate, we are exposed to significant operational hazards such as grain dust explosions, fires, malfunction of equipment, abnormal pressures, blowouts, pipeline and tank ruptures, chemical spills or run-off, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage and may result in suspension of operations and the imposition of civil or criminal penalties. If grain dust were to explode at one of our elevators, if an ethanol plant were to explode or catch fire, or if one of our pieces of equipment were to fail or malfunction due to an accident or improper maintenance, it could put our employees and others at serious risk.

The Company's information technology systems may impose limitations or failures, or may face external threats, which may affect the Company's ability to conduct its business.

The Company's information technology systems, some of which are dependent on services provided by third parties, provide critical data connectivity, information and services for internal and external users. These interactions include, but are not limited to, ordering and managing materials from suppliers, converting raw materials to finished products, inventory management, shipping products to customers, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, human resources and other processes necessary to manage the business. The Company has put in place business continuity plans for its critical systems. However, if the Company's information technology systems are damaged, or cease to function properly due to any number of causes, such as catastrophic events or power outages, and the Company's business continuity plans do not allow it to effectively recover on a timely basis, the Company may suffer interruptions in the ability to manage its operations, which may adversely impact the Company's operating results. Our security measures may also be breached due to employee error, malfeasance, or otherwise. In addition, although the systems continue to be refreshed periodically, portions of the infrastructure are outdated and may not be adequate to support new business processes, accounting for new transactions, or implementation of new accounting standards if requirements are complex or materially different than what is currently in place.

Additionally, outside parties may attempt to destroy critical information, or fraudulently induce employees, third-party service providers, or users to disclose sensitive information to gain access to our data or our users' data. As a response, the Company requires user names and passwords to access its information technology systems. The Company also uses encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to Company and user data or accounts. The Company also conducts annual tests and assessments using independent third parties. As with all companies, these security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management, or other irregularities. We cannot assure our ability to prevent, repel or mitigate the effects of such an attack by outside parties. The Company also relies on third parties to maintain and process certain information which could be subject to breach or unauthorized access to Company or employee information. Any such breach or unauthorized access could result in an inability to perform critical functions, significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our services that could potentially have an adverse effect on our business.

The Company's design and implementation of its Enterprise Resource Planning system could face significant difficulties.

The Company is designing and implementing Enterprise Resource Planning ("ERP") systems, requiring significant capital and human resources to deploy. There is risk of such implementations being more expensive and taking longer to fully implement than originally planned, resulting in increased capital investment, higher fees and expenses of third parties, delayed deployment scheduling, and more on-going maintenance expense once implemented, and, as such, the ultimate costs and schedules are not yet known. If for any reason portions of the implementation are not successful, the Company could be required to expense rather than capitalize related amounts. Beyond cost and scheduling, potential flaws in the implementation of an ERP system may pose risks to the Company's ability to operate successfully and efficiently. These risks include, without limitation, inefficient use of employees, distractions to the Company's core businesses, adverse customer reactions, loss of key information, delays in decision making, as well as unforeseen additional costs due to the inability to integrate vital information processes.

Unauthorized disclosure of sensitive or confidential customer information could harm the Company's business and standing with our customers.

The protection of our customer, employee and Company data is critical to us. The Company relies on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as payment card and personal information. The Company also conducts annual tests and assessments using independent third parties. Despite the security measures the Company has in place, its facilities and systems, and those of its third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information, whether by the Company or its vendors, could damage our reputation, expose us to risk of litigation and liability, disrupt our operations and harm our business.

A change in tax laws or regulations of any federal, state or international jurisdiction in which we operate could increase our tax burden and otherwise adversely affect our financial position, results of operations, cash flows and liquidity.

We continue to assess the impact of various U.S. federal, state, local and international legislative proposals that could result in a material increase to our U.S. federal, state, local and/or international taxes. We cannot predict whether any specific legislation will be enacted or the terms of any such legislation. However, if such proposals were to be enacted, or if modifications were to be made to certain existing regulations, the consequences could have a material adverse impact on us, including increasing our tax burden, increasing our cost of tax compliance or otherwise adversely affecting our financial position, results of operations, cash flows and liquidity. Changes in applicable U.S. or foreign tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect our tax expense and profitability as they did in 2017 upon passage of the Tax Cuts and Jobs Act. Such impact may also be affected positively or negatively by subsequent potential judicial interpretation or related regulation or legislation which cannot be predicted with certainty.

Item 1B. Unresolved Staff Comments

The Company has no unresolved staff comments.

Item 2. Properties

The Company's principal agriculture, rail, and other properties are described below. The Company believes that its properties are adequate for its business, well maintained and utilized, suitable for their intended uses and adequately insured.

Agriculture and Ethanol Facilities




	Ethanol	Trade	Plant Nutrient
(in thousands)	Nameplate Capacity	Grain Storage	Dry Fertilizer Storage	Liquid Fertilizer Storage
Location	(gallons)	(bushels)	(tons)	(tons)
Canada	—	22,256	—	—
Colorado	—	1,586	—	—
Idaho	—	16,655	—	—
Illinois	—	16,164	56	11
Indiana	110,000	22,494	145	143
Iowa	55,000	—	—	70
Kansas	70,000	—	—	—
Kentucky	—	1,410	—	—
Louisiana	—	24,948	—	—
Michigan	130,000	28,710	70	47
Minnesota	—	1,717	—	47
Nebraska	—	18,714	—	45
New York	—	1,390	—	—
Ohio	110,000	41,912	188	64
Puerto Rico	—	—	—	10
Tennessee	—	2,506	—	—
Texas	—	6,152	—	—
Wisconsin	—	—	27	78
	475,000	206,614	486	515

The grain facilities are mostly concrete and steel tanks, with some flat storage buildings. The Company also owns grain inspection buildings and dryers, maintenance buildings and truck scales and dumps. Approximately 80% of the total storage capacity noted above, which includes temporary pile storage, is owned, while the remaining 20% of the total capacity is leased from third parties.

The Plant Nutrient Group's wholesale nutrient and farm center properties consist mainly of fertilizer warehouse and formulation and packaging facilities for dry and liquid fertilizers. The Company owns approximately 99% of the dry and liquid storage capacity noted above. The Company owns lawn fertilizer production facilities in Maumee, Ohio; Bowling Green, Ohio; Montgomery, Alabama; and Mocksville, North Carolina. The Company leases a 245,000 square foot distribution center and 159,000 square feet of a lawn fertilizer warehouse facility in Maumee, Ohio.

Rail Equipment




Equipment	Number of Units	Percentage of Fleet
Covered Hoppers	15,822	63.6%
Tanks	4,713	18.9%
Gondolas	1,094	4.4%
Open-top Hoppers	1,022	4.1%
Boxcars	947	3.8%
Pressure Differential Covered Hoppers	724	2.9%
Flat Cars	514	2.1%
Other	25	0.1%
Locomotives	23	0.1%
	24,884	100%

The Company’s revenue-generating equipment, either owned or long-term leased, consists of freight cars and locomotives as described below.

Covered hoppers - Have a permanent roof and are segregated based upon commodity density. Lighter bulk commodities such as grain, fertilizer, flour, salt, plastics, DDGs and lime are shipped in medium, large and jumbo covered hoppers. Heavier commodities like cement, fly ash, ground limestone and industrial sand are shipped in small cube covered hoppers.

Tanks - Transports liquid and gaseous commodities.

Gondolas - Supports metals markets, coal, aggregates and stone, and provides transport for woodchips and other bulk commodities.

Open-top hoppers - Transports heavy dry bulk commodities such as coal, coke, stone, sand, ores and gravel that are resistant to weather conditions.

Boxcars - Includes a variety of tonnages, sizes, door configurations and heights to accommodate a wide range of finished products, including building materials, metal products, minerals, cement and food products.

PD hoppers - Transports cement, fertilizers, flour, grain products, clay and sand that utilize a pressure differential (PD) system on the hopper cars that assists with unloading of the commodities from either side of the car.

Flat cars - Used for shipping bulk and finished goods, such as lumber, steel, pipe, plywood, drywall and pulpwood.

Other cars - Primarily leased refrigerator cars and barges.

Locomotives - Primarily to pull trains.

The Company operates 26 railcar repair facilities throughout the country.

Item 3. Legal Proceedings

The Company is currently subject to various claims and suits arising in the ordinary course of business, which include environmental issues, employment claims, contractual disputes, and defensive counterclaims. The Company accrues liabilities in which litigation losses are deemed probable and estimable. The Company believes it is unlikely that the results of its current legal proceedings, even if unfavorable, will be materially different from what it currently has 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 4. Mine Safety

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

Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, the required mine safety results regarding certain mining safety and health matters for each of our mine locations that are covered under the scope of the Dodd-Frank Act are included in Exhibit 95 of Item 15. Exhibits and Financial Statement Schedules, and Reports on Form 8-K.

Part II.

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Common Shares of The Andersons, Inc. trade on the Nasdaq Global Select Market under the symbol “ANDE”.

Shareholders

At February 14, 2020, there were 1,098 shareholders of record and approximately 13,024 shareholders for whom security firms acted as nominees.

Dividends

The Company has declared and paid consecutive quarterly dividends since the end of 1996, its first year of trading on the Nasdaq market. Dividends paid from January 2018 to January 2020 are as follows:



Payment Date		Amount
1/23/2018		$0.165
4/23/2018		$0.165
7/23/2018		$0.165
10/22/2018		$0.165
1/23/2019		$0.170
4/22/2019		$0.170
7/22/2019		$0.170
10/22/2019		$0.170
1/23/2020		$0.175

While the Company's objective is to pay a quarterly cash dividend, dividends are subject to Board of Director approval.

Equity Plans

The following table gives information as of December 31, 2019 about the Company's Common Shares that may be issued upon the exercise of options under all of its existing equity compensation plans.



	Equity Compensation Plan Information
Plan category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	1,091,137 ⁽¹⁾	$	37.45	2,751,131 ⁽²⁾
Equity compensation plans not approved by security holders⁽³⁾	467,002	34.87		48,323

(1)

This number includes 325,000 Non-Qualified Stock Options (“Options”), 263,410 total shareholder return-based performance share units, 263,242 earnings per share-based performance share units, and 239,485 restricted shares outstanding under The Andersons, Inc. 2019 Long-Term Performance Compensation Plan. This number does not include any shares related to the Employee Share Purchase Plan. The Employee Share Purchase Plan allows employees to purchase common shares at the lower of the market value on the beginning or end of the calendar year through payroll withholdings. These purchases are completed as of December 31.


(2)	This number includes 229,909 Common Shares available to be purchased under the Employee Share Purchase Plan and 2,521,222 shares available under equity compensation plans.

(3)

In connection with the Company’s acquisition of the interests in LTG the Company did not already own, the Company established the Lansing Acquisition 2018 Inducement and Retention Award Plan (the “Inducement Plan"). The Inducement Plan is to be used exclusively for the grant of equity awards to individuals who were not previously an employee or non-employee director of the Company (or following a bona fide period of non-employment), as an inducement material to each such individual entering into employment with the Company and to replace existing LTG equity awards. The Company issued 608,680 shares of restricted stock under the Inducement Plan in multiple grants during 2019. Approximately 130,000 shares vested as of June 30, 2019. The remaining shares have vesting dates of January 1, 2020, April 1, 2020, January 1, 2021, April 1, 2021 and January 1, 2022. All awards under the Inducement Plan are subject to each such employee’s continued employment with the Company on such vesting dates. Unvested shares of restricted stock are entitled to vote, entitled to dividends (provided that the actual payment of dividends is conditioned upon the vesting of the shares) and are not transferable.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 2019	—	$	—	—	—
November 2019	—	—		—	—
December 2019	2,111	24.01		—	—
Total	2,111	$	24.01	—	—

(1) During the three months ended December 31, 2019, the Company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

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

Sale of Unregistered Securities

On January 2, 2019, in connection with the LTG acquisition, the Company issued 4.4 million shares of common stock as partial consideration to acquire the portion of LTG that the Company did not previously own. This represented approximately 38.9% of the total consideration paid by the Company. The Company relied on the exemption from registration provided by Regulation D and other applicable federal and state securities law exemptions.

Performance Graph

The graph below compares the total shareholder return on the Company's Common Shares to the cumulative total return for the Nasdaq U.S. Index and a Peer Group Index. The indices reflect the year-end market value of an investment in the stock of each company in the index, including additional shares assumed to have been acquired with cash dividends, if any. The Peer Group Index, weighted for market capitalization, includes the following companies:



Archer-Daniels-Midland Co.	Nutrien
GATX Corp.	The Greenbrier Companies, Inc.
Green Plains, Inc.	The Scott's Miracle-Gro Company
Ingredion Incorporated

The graph assumes a $100 investment in The Andersons, Inc. Common Shares on December 31, 2014 and also assumes investments of $100 in each of the Nasdaq U.S. and Peer Group indices, respectively, on December 31 of the first year of the graph. The value of these investments as of the following calendar year-ends is shown in the table below the graph.



	Base Period		Cumulative Returns
	December 31, 2014		2015		2016		2017		2018		2019
The Andersons, Inc.	$	100.00	$	60.49	$	87.04	$	61.82	$	60.51	$	52.52
NASDAQ U.S.	100.00		106.96		116.45		150.96		146.67		200.49
Peer Group Index	100.00		69.52		88.21		91.49		82.70		93.85

Item 6. Selected Financial Data

The following table sets forth selected consolidated financial data of the Company. The data for each of the five years in the period ended December 31, 2019 is derived from the Consolidated Financial Statements of the Company. The data presented below should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in Item 7, and the Consolidated Financial Statements and notes thereto included in Item 8.



	For the year ended December 31,
(in thousands, except for per share and ratios and other data)	2019			2018			2017			2016			2015
Operating results
Sales and merchandising revenues (a)	$	8,170,191		$	3,045,382		$	3,686,345		$	3,924,790		$	4,198,495
Gross profit	517,892			302,005			318,799			345,506			375,838
Equity in earnings of affiliates	(7,359		)	27,141			16,723			9,721			31,924
Other income, net (b)	20,109			16,002			22,507			12,473			46,472
Net income (loss)	15,060			41,225			42,609			14,470			(11,322		)
Net income (loss) attributable to The Andersons, Inc.	18,307			41,484			42,511			11,594			(13,067		)
EBITDA (c)	233,968			171,560			87,356			123,949			85,219
EBITDA attributable to The Andersons, Inc. (c)	226,608			169,716			86,393			122,132			83,402
Financial position
Total assets	3,900,741			2,392,003			2,162,354			2,232,849			2,359,101
Working capital	505,423			189,848			260,495			258,350			241,485
Long-term debt, recourse (d)	693,831			349,834			418,339			397,065			436,208
Long-term debt, non-recourse (d)	331,024			146,353			—			—			—
Total equity	1,195,655			876,764			822,899			790,697			783,739
Cash flows / liquidity
Cash flows from (used in) operations	348,562			(35,519		)	75,285			39,585			154,134
Depreciation and amortization	146,166			90,297			86,412			84,325			78,456
Cash invested in acquisitions (e)	(102,580		)	(2,248		)	(3,507		)	—			(128,549		)
Purchase of investments	(1,490		)	(1,086		)	(5,679		)	(2,523		)	(938		)
Investments in property, plant and equipment and capitalized software	(165,223		)	(142,579		)	(34,602		)	(77,740		)	(72,469		)
Net proceeds from (investment in) Rail Group assets (f)	(87,164		)	(87,566		)	(106,124		)	(28,579		)	(38,407		)
Per share data (g)
Net income (loss) - basic	0.56			1.47			1.51			0.41			(0.46		)
Net income (loss) - diluted	0.55			1.46			1.50			0.41			(0.46		)
Dividends declared	0.6850			0.6650			0.6450			0.6250			0.5750
Year-end market value	25.28			29.89			31.15			44.70			31.63
Ratios and other data
Net income (loss) attributable to The Andersons, Inc. return on beginning equity attributable to The Andersons, Inc.	2.2		%	5.1		%	5.5		%	1.5		%	(1.6		)%
Funded long-term debt to equity ratio (h)	0.8-to-1			0.6-to-1			0.5-to-1			0.5-to-1			0.6-to-1
Weighted average shares outstanding (000's)	32,570			28,258			28,126			28,193			28,288
Effective tax rate	46.4		%	22.5		%	307.6		%	32.3		%	2.1		%

(a) Includes sales of $456.7 million in 2019, $625.2 million in 2018, $1,089.7 million in 2017, $854.6 million in 2016 and $872.1 million in 2015, pursuant to marketing and origination agreements between the Company and the unconsolidated ethanol LLCs, prior to the TAMH merger and consolidation of these entities in the fourth quarter of 2019. Sales amounts from 2019 are for the first nine months of the year, prior to the TAMH merger. In 2018, the adoption of ASC 606 led to a change in treatment of grain origination transactions that are now shown net versus gross. This change caused a decrease in revenue and an equal offsetting decrease to cost of sales.

(b) Includes $23.1 million for the gain on dilution and partial share redemption of the LTG investment in 2015.

(c) Earnings before interest, taxes, depreciation and amortization, or EBITDA and EBITDA attributable to The Andersons, Inc., are non-GAAP measures. The Company believes these EBITDA measures provide additional information to investors and others about its operations allowing an evaluation of underlying operating performance and period-to-period comparability. EBITDA and EBITDA attributable to The Andersons, Inc. is not and should not be considered as an alternative to net income as determined by generally accepted accounting principles.

(d) Excludes current portion of long-term debt but includes finance lease amounts.

(e) In 2015, the Company acquired 100% of the stock of Kay Flo Industries, Inc. In 2019, the Company acquired the remaining equity of Lansing Trade Group and Thompsons Limited and completed the TAMH merger.

(f) Represents the net of purchases of Rail Group assets offset by proceeds on sales of Rail Group assets.

(g) Earnings per share are calculated based on Income attributable to The Andersons, Inc.

(h) Calculated by dividing long-term debt by total year-end equity as stated under “Financial position.”

The following table sets forth our reconciliation of Net Income (Loss) to non-GAAP measures of EBITDA and EBITDA attributable to The Andersons, Inc.



	For the years ended December 31,
(in thousands)	2019			2018			2017			2016		2015
Net Income (Loss)	$	15,060		$	41,225		$	42,609		$	14,470	$	(11,322	)
Add:
Provision (benefit) for income taxes	13,051			11,931			(63,134		)	6,911		(242		)
Interest expense	59,691			27,848			21,567			21,119		20,072
Depreciation and amortization	146,166			90,297			86,412			84,325		78,456
EBITDA	233,968			171,301			87,454			126,825		86,964
Less:
Net income (loss) attributable to the noncontrolling interests	(3,247		)	(259		)	98			2,876		1,745
Provision (benefit) for income taxes attributable to the noncontrolling interests	12			—			—			—		—
Interest expense attributable to the noncontrolling interests	1,318			929			77			929		929
Depreciation and amortization attributable to the noncontrolling interests	9,277			915			886			888		888
EBITDA attributable to The Andersons, Inc.	$	226,608		$	169,716		$	86,393		$	122,132	$	83,402

The Company uses earnings before taxes, interest, and depreciation and amortization (EBITDA) and EBITDA attributable to The Andersons, Inc., non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.

Management believes that EBITDA and EBITDA attributable to The Andersons, Inc. are useful measures of the Company’s performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability. EBITDA and EBITDA attributable are not intended to replace or be alternatives to Net Income or Net Income attributable to The Andersons, Inc., the most directly comparable amounts reported under GAAP.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

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

Executive Overview

Our operations are organized, managed and classified into four reportable business segments: Trade, Ethanol, Plant Nutrient, and Rail. Each of these segments is generally based on the nature of products and services offered. In January 2019, the Company completed the acquisition of 67.5% of LTG equity that it did not already own. The transaction also resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company jointly owned. The presentation here includes a majority of the acquired business within the legacy Grain Group which has been renamed, Trade Group, with the remaining pieces of the acquired business included in Ethanol as stated in the segment footnote (Note 13).

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 commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit. As a result, changes in sales between periods may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes in gross profit.

Trade Group

The Trade Group's performance reflects an increase in merchandising activity through the acquisition of LTG which helped to offset the weak storage income from the grain elevator component business as adverse weather conditions severely impacted the geographic footprint of the Company's grain storage business early in the year. The group also recorded several asset impairments in the current year, the largest of which related to the Company's frac sand business as the industry has faced significant challenges due to the market penetration of in-basin sand and a prolonged reduction in oil and natural gas prices.

Total grain storage capacity, including temporary pile storage, was approximately 206.6 million bushels as of December 31, 2019 and 141.0 million bushels as of December 31, 2018. This increase in capacity is a result of the LTG acquisition. Commodity inventories on hand at December 31, 2019 were 152.8 million bushels, of which 6.4 million bushels were stored for others. This compares to 109.4 million bushels on hand at December 31, 2018, of which a de minimis amount were stored for others.

The group will focus on growth of originations, risk management services and the food ingredient business while monitoring macroeconomic events which could cause more volatility in the market.

Ethanol Group

The Ethanol Group remained profitable for the full year despite a challenging margin environment and recorded a large one time gain as a result of the TAMH merger. The Ethanol Group's current year results reflect higher sales volumes of ethanol from the recently acquired ethanol trading business and the newly constructed ELEMENT facility which are now being included in the Company's Consolidated Financial Statements. As we move into 2020, the Ethanol Group expects continued margin headwinds from a current oversupply of ethanol and the high corn basis across the Eastern Corn Belt.

Volumes shipped for the years ended December 31, 2019 and December 31, 2018 were as follows:



	Twelve months ended December 31,
(in thousands)	2019	2018
Ethanol (gallons)	542,146	451,306
E-85 (gallons)	47,708	61,382
Corn Oil (pounds)	48,702	20,348
DDG (tons)	446	158

The above table shows only shipped volumes that flow through the Consolidated Financial Statements of the Company. As the Company merged its former unconsolidated LLCs into the consolidated TAMH entity in the fourth quarter of 2019, these consolidated volumes in the fourth quarter are now included in the 2019 amounts above. Total ethanol, DDG, and corn oil production by the unconsolidated LLCs for the first three quarters of 2019 and the whole year of 2018 is higher. However, the portion of this volume that was sold from the unconsolidated LLCs directly to their customers for the first nine months of 2019 is excluded here.

Plant Nutrient Group

The Plant Nutrient Group's results decreased year-over-year due to a wet spring that compressed the planting time frame in areas that we supply and large profitable specialty nutrient manufacturing contracts that were entered into in the prior year which did not recur in the current year.

Total storage capacity at our wholesale nutrient and farm center facilities was approximately 486 thousand tons for dry nutrients and approximately 515 thousand tons for liquid nutrients at December 31, 2019, which is similar to the prior year.

Looking ahead, the group expects to face a continued challenging margin environment and will remained focused on increasing sales and working capital management.

Tons of product sold for the years ended December 31, 2019 and December 31, 2018 were as follows:



(in thousands)	Twelve months ended December 31,
	2019	2018
Primary Nutrients	1,394	1,424
Specialty Nutrients	605	694
Other	56	56
Total tons	2,055	2,174

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

Rail Group

The Rail Group's results were lower than the prior year. The reduction in earnings were driven by lower average lease rates, lower North American railcar loading and certain customer defaults particularly in the sand and ethanol markets. The average utilization rate (Rail Group assets under management that are in lease service, exclusive of those managed for third-party investors) was 92.4% for the year ended December 31, 2019 which was 1.5% higher than the prior year. Rail Group assets under management (owned, leased or managed for financial institutions in non-recourse arrangements) at December 31, 2019 were 24,884 compared to 23,463 at December 31, 2018.

The Rail Group expects continued pressure on new and renewing lease rates across most commodities throughout 2020. The utilization rates, however, are expected to remain above 90 percent. The group is also looking for additional growth on its repair business as we expand our network.

Other

In 2019, the Company acquired the remaining interest not previously owned in LTG and in 2018 incurred $6.5 million in one-time expenses related to the acquisition.

The Company's “Other” represents corporate functions that provide support and services to the operating segments. The results contained within this group include expenses and benefits not allocated back to the operating segments, including a significant portion of our ERP project and retail from the prior year.

Results for Fiscal 2018 compared to Fiscal 2017

For comparisons of the Company's consolidated and segment results of operations and consolidated cash flows for the fiscal years ended December 31, 2018 to December 31, 2017, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 27, 2019.

On February 12, 2020, we furnished a Current Report on Form 8-K to the SEC that included a press release issued that same day announcing the fourth quarter and full-year financial results for the period ended December 31, 2019, which was furnished as Exhibit 99.1 thereto (the "Earnings Release"). The Earnings Release reported: (a) Other current assets of $92.3 million and (b) Goodwill of $137.8 million, (c) Accrued expenses and other current liabilities of $190.6 million, (d) Deferred income taxes of $149.4 million and (e) Total equity of $1,201.0 million as of December 31, 2019. The Consolidated Balance Sheet and accompanying notes in this Form 10-K reports (a) Other current assets of $75.7 million and (b) Goodwill of $135.4 million, (c) Accrued expenses and other current liabilities of $176.4 million, (d) Deferred income taxes of $146.2 million and (e) Total equity of $1,195.7 million as of December 31, 2019. Subsequent to the Earnings Release, we recorded an adjustment related to deferred taxes in conjunction with purchase price accounting finalization of the LTG acquisition.

Operating Results

The following discussion focuses on the operating results as shown in the Consolidated Statements of Operations with a separate discussion by segment. Additional segment information is included in Note 13 to the Company's Consolidated Financial Statements in Item 8.



	Year ended December 31, 2019
(in thousands)	Trade			Ethanol			Plant Nutrient		Rail		Other			Total
Sales and merchandising revenues	$	6,387,744		$	968,779		$	646,730	$	166,938	$	—		$	8,170,191
Cost of sales and merchandising revenues	6,052,519			942,341			547,626		109,813		—			7,652,299
Gross profit	335,225			26,438			99,104		57,125		—			517,892
Operating, administrative and general expenses	279,502			17,417			84,719		27,132		28,072			436,842
Asset impairment	38,536			—			2,175		—		501			41,212
Interest expense (income)	35,202			584			7,954		16,486		(535		)	59,691
Equity in earnings (losses) of affiliates, net	(6,835		)	(524		)	—		—		—			(7,359		)
Other income (expense), net	10,070			37,199			4,903		1,583		1,568			55,323
Income (loss) before income taxes	(14,780		)	45,112			9,159		15,090		(26,470		)	28,111
Income (loss) before income taxes attributable to the noncontrolling interests	—			(3,247		)	—		—		—			(3,247		)
Non-GAAP Income (loss) before income taxes, attributable to The Andersons, Inc.	$	(14,780	)	$	48,359		$	9,159	$	15,090	$	(26,470	)	$	31,358



	Year ended December 31, 2018
(in thousands)	Trade		Ethanol			Plant Nutrient		Rail		Other			Total
Sales and merchandising revenues	$	1,433,660	$	747,009		$	690,536	$	174,177	$	—		$	3,045,382
Cost of sales and merchandising revenues	1,307,121		725,289			591,635		119,332		—			2,743,377
Gross profit	126,539		21,720			98,901		54,845		—			302,005
Operating, administrative and general expenses	105,190		13,768			82,867		24,897		31,150			257,872
Asset impairment	1,564		—			—		4,708		—			6,272
Interest expense (income)	11,845		(1,890		)	6,499		11,377		17			27,848
Equity in earnings (losses) of affiliates, net	12,932		14,209			—		—		—			27,141
Other income (expense), net	843		2,766			2,495		3,516		6,382			16,002
Income (loss) before income taxes	21,715		26,817			12,030		17,379		(24,785		)	53,156
Income (loss) before income taxes attributable to the noncontrolling interests	—		(259		)	—		—		—			(259		)
Non-GAAP Income (loss) before income taxes, attributable to The Andersons, Inc.	$	21,715	$	27,076		$	12,030	$	17,379	$	(24,785	)	$	53,415

The Company uses Income (loss) before income taxes, attributable to The Andersons, Inc., a non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.

Management believes that Income (loss) before income taxes, attributable to The Andersons, Inc. is useful measures of the Company’s performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability. This measure is not intended to replace or be alternatives to Net Income or Net Income attributable to The Andersons, Inc., the most directly comparable amounts reported under GAAP.

Comparison of 2019 with 2018

Trade Group

Operating results for the Trade Group decreased $36.5 million compared to prior year results. Sales and merchandising revenues increased $4,954.1 million compared to prior year amounts which was largely offset as cost of sales and merchandising revenues increased by $4,745.4 million for an increase in gross profit of $208.7 million. Substantially all of the gross profit increase from the prior year was a direct result of acquiring the remaining equity in LTG and Thompsons on January 1, 2019.

Operating, administrative and general expenses increased $174.3 million compared to prior year results. The acquisition of the remaining equity in LTG and Thompsons accounted for substantially all of this increase as the business is significantly larger. Also, included in the increased expenses are purchase accounting and other acquisition-related items, such as, $9.3 million of stock-based compensation expense, $10.2 million of incremental depreciation and amortization expenses and $7.8 million of other transaction related expenses.

The Trade Group recorded asset impairment charges of $38.5 million and $1.6 million in 2019 and 2018, respectively. The current year asset impairment charges include a $34.8 million impairment of the Company's Frac Sand business following a fundamental shift in the operating environment in the areas we are located and $3.7 million related to the Company's Tennessee assets, as it continued to dispose of its remaining assets in this region.

Interest expense increased $23.4 million due to higher debt levels resulting from the acquisition and higher borrowing rates.

Equity in earnings of affiliates decreased $19.8 million as LTG and Thompsons, previously accounted for on the equity method, were fully consolidated entities as of January 1, 2019. The loss in the current year primarily relates to one investment that realized losses and the Company recorded an other-than-temporary impairment charge of approximately $5.0 million.

Ethanol Group

Operating results for the Ethanol Group increased $21.3 million from the prior year. Sales and merchandising revenues increased $221.8 million and cost of sales and merchandising revenues increased $217.1 million compared to prior year results primarily attributable to the TAMH merger and the LTG acquisition. Gross profit increased by $4.7 million from increased sales volumes as a result of increased merchandising activity due to the LTG acquisition.

Operating, administrative and general expenses increased $3.6 million from the prior year due to the ELEMENT facility commencing operations in 2019, and the impact of the TAMH merger in October 2019. Prior to the merger, the Company's share of operating, administrative and general expenses would have been recognized in equity earnings.

Interest expense increased $2.5 million due to the cessation of the capitalization of interest related to the construction of the ELEMENT facility which was completed in 2019.

Equity in earnings of affiliates decreased $14.7 million as a result of the unconsolidated ethanol LLCs experiencing compressed margins from higher corn costs for the first three quarters of the year. The fourth quarter 2019 results of the previously unconsolidated ethanol LLCs are now included in the consolidated financial results of the Company.

Plant Nutrient Group

Operating results for the Plant Nutrient Group decreased $2.9 million compared to the same period in the prior year. Sales and merchandising revenues decreased $43.8 million and cost of sales and merchandising revenues decreased $44.0 million from a significant decrease in primary and specialty ton volumes. The volume declines were due to a compressed Spring planting season as well as volumes in the lawn business that did not recur in the current year. The decrease in primary and specialty volumes was more than offset by improved pricing discipline and favorable raw material sourcing which led to an increased gross profit of $0.2 million for the group overall.

Operating, administrative and general expenses increased $1.9 million primarily due to increases in rent and storage costs from holding more product on hand and unfavorable production costs resulting in low volumes from weak market conditions.

Interest expense increased $1.5 million from carrying higher levels of inventories at the beginning of the year due to the wet weather that delayed and reduced planting.

Rail Group

Operating results for the Rail Group decreased $2.3 million from the same period in the prior year. Sales and merchandising revenues decreased $7.2 million and cost of sales and merchandising revenues decreased $9.5 million compared to prior year results. The decreased revenues were driven by a decrease of $13.7 million in car sale revenues as the Company sold more cars in 2018 when scrap rates were more favorable and was partially offset by an increase of $4.7 million in leasing revenues due to higher utilization rates with more cars on lease and an increase of $1.7 million in repair and other revenues.

Operating, administrative and general expenses increased $2.2 million from the prior year primarily from the impact of headwinds in the frac sand and ethanol industries, resulting in an additional $2.7 million of bad debt expense being incurred in the current year.

Asset impairment charges of $4.7 million were recorded in the prior year from a decision to scrap certain idled, out-of-favor cars during the second quarter of 2018, taking advantage of high scrap prices.

Interest expense increased $5.1 million due to higher borrowings, as the Company was a net buyer of rail cars in the current year.

Other income decreased $1.9 million due to a $2.4 million gain on the sale of barges in the prior year that did not recur in the current year.

Other Group

Operating, administrative and general expenses decreased $3.1 million due to severance, acquisition due diligence costs and other IT implementation costs reflected in 2018 which did not recur in 2019. Other income for 2018 includes $3.9 million of gains related to the sale of an investment and a $1.2 million gain related to the revaluation of another investment.

Income Taxes

In 2019, the Company recorded income tax expense of $13.1 million at an effective rate of 46.4%. In 2018, the Company recorded income tax expense of $11.9 million at an effective tax rate of 22.5%. The increase in effective tax rate as compared to the same period last year was primarily attributed to the impact of an acquisition related permanent item related to the LTG acquisition. This was slightly offset by the impact of discrete net tax benefits from provision to return items and federal income tax credits including a tax benefit of $6.5 million for Federal Research & Development Credits (“R&D Credits”) related to tax years 2015 to 2019.

Liquidity and Capital Resources

Working Capital

At December 31, 2019, the Company had working capital of $505.4 million, an increase of $315.6 million from the prior year. This increase was attributable to changes in the following components of current assets and current liabilities:



(in thousands)	December 31, 2019		December 31, 2018		Variance
Current Assets:
Cash and cash equivalents	$	54,895	$	22,593	$	32,302
Accounts receivables, net	536,367		207,285		329,082
Inventories	1,170,536		690,804		479,732
Commodity derivative assets – current	107,863		51,421		56,442
Other current assets	75,681		51,095		24,586
Total current assets	1,945,342		1,023,198		922,144
Current Liabilities:
Short-term debt	147,031		205,000		(57,969		)
Trade and other payables	873,081		462,535		410,546
Customer prepayments and deferred revenue	133,585		32,533		101,052
Commodity derivative liabilities – current	46,942		32,647		14,295
Accrued expenses and other current liabilities	176,381		79,046		97,335
Current maturities of long-term debt	62,899		21,589		41,310
Total current liabilities	1,439,919		833,350		606,569
Working capital	$	505,423	$	189,848	$	315,575

December 31, 2019 current assets increased $922 million in comparison to prior year. This increase was primarily related to the Trade Group as the current assets balance for the group increased by $790 million from the prior year due to the LTG acquisition. Current assets also increased approximately $122 million as a result of the TAMH merger in the current year. Accounts receivable increased due primarily to a higher volume of commodity shipments compared to the prior year. See also the discussion below on additional sources and uses of cash for an understanding of the increase in cash from prior year.

Current liabilities increased $607 million compared to the prior year primarily due to the acquisition of LTG, the TAMH merger, and the debt related changes detailed in Note 4, Debt.

Sources and Uses of Cash 2019 compared to 2018

Operating Activities and Liquidity

Our operating activities provided cash of $348.6 million in 2019 compared to cash used in operations of $35.5 million in 2018. The increase in cash provided was due to changes in working capital, as discussed above, driven primarily by increased activity from the LTG acquisition.

Net income taxes of $2.0 million were paid in 2019 and net income taxes of $5.4 million were received in 2018.

Investing Activities

Investing activities used $325.0 million in 2019 compared to $186.0 million used in 2018. The increase was largely driven by the LTG acquisition in the current year. Cash used for the purchases of property, plant, equipment, and capitalized software increased $22.6 million primarily due to costs associated with the construction of the bio-refinery facility in 2018 and 2019.

Purchases of Rail Group assets were $105.3 million in the current year compared to $167.0 million in the prior year as the Company replaced idle and scrapped cars with newer cars under lease. Proceeds from the sale of Rail Group assets were $18.1 million in 2019 and $79.4 million in 2018. The decrease is primarily due to the unfavorable scrap rates in the current year. As such, net spend on Rail assets decreased $0.4 million compared to the prior year.

Capital spending of $161.0 million for 2019 on property, plant and equipment includes: Trade - $31.2 million; Ethanol - $104.0 million; Plant Nutrient - $20.4 million; Rail - $1.8 million; and $3.5 million in corporate / enterprise resource planning project spending.

Proceeds from the sale of assets decreased $16.9 million due to the 2018 sale of three Tennessee grain locations and the sale of a corporate investment that exceeded the 2019 facility sales in the current year.

We expect to spend approximately $150.0 million in 2020 on conventional property, plant and equipment. Which includes Trade - $49.0 million; Ethanol - $21.0 million; Plant Nutrient - $20.0 million; Rail - $56.0 million; and $4.0 million in corporate.

Financing Arrangements

Net cash provided by financing activities was $8.7 million in 2019, compared to $209.2 million in 2018. This was largely due to an increase in proceeds from new debt issued to finance the LTG acquisition offset by a reduction in short-term borrowing used to finance working capital. Further, in 2018 we received proceeds from our noncontrolling interest owner related to their 49% investment in the ELEMENT bio-refinery facility, which incurred significant construction costs.

As of December 31, 2019, the Company was party to borrowing arrangements with a syndicate of banks that provide a total of $1,777.8 million in borrowings. This amount includes $70.0 million for ELEMENT, $200.0 million for The Andersons Railcar Leasing Company LLC and $130 million for TAMH, all of which are non-recourse to the Company. Of that total, we had $1,305.3 million available for borrowing at December 31, 2019. Typically, our highest borrowing occurs in the late winter and early spring due to seasonal inventory requirements in our fertilizer and grain businesses.

The Company paid $22.1 million in dividends in 2019 compared to $18.6 million in 2018. The Company paid $0.170 per common share for the dividends paid in January, April, July and October 2019, and $0.165 per common share for the dividends paid in January, April, July and October 2018. On December 13, 2019, we declared a cash dividend of $0.175 per common share, payable on January 23, 2020 to shareholders of record on January 2, 2020.

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 December 31, 2019. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by ethanol plant assets and railcar assets.

Because we are a significant consumer of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on our profitability. In addition, periods of high grain prices and / or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, we receive a return of cash.

We believe our sources of liquidity will be adequate to fund our operations, capital expenditures and payments of dividends in the foreseeable future.

Contractual Obligations

Future payments due under contractual obligations at December 31, 2019 are as follows:



	Payments Due by Period
(in thousands)	Less than 1 year		1-3 years		3-5 years		After 5 years		Total
Long-term debt, recourse	$	36,013	$	113,219	$	190,574	$	368,893	$	708,699
Long-term debt, non-recourse	9,250		209,750		31,113		89,802		339,915
Interest obligations (a)	39,898		63,097		44,985		77,707		225,687
Finance Leases	17,636		3,641		3,429		14,432		39,138
Operating leases	28,145		32,804		15,454		6,956		83,359
Purchase commitments (b)	3,288,084		102,784		—		—		3,390,868
Other long-term liabilities (c)	2,602		3,953		3,140		7,078		16,773
Construction commitment (d)	3,906		—		—		—		3,906
Total contractual cash obligations	$	3,425,534	$	529,248	$	288,695	$	564,868	$	4,808,345

(a) Future interest obligations are calculated based on interest rates in effect as of December 31, 2019 for the Company's variable rate debt and do not include any assumptions on expected borrowings, if any, under the short-term line of credit.

(b) Includes the amounts related to purchase obligations in the Company's operating units, including $3,277 million for the purchase of grain from producers. There are also forward grain and ethanol sales contracts to consumers and traders and the net of these forward contracts are offset by exchange-traded futures and options contracts or over-the-counter contracts. See the narrative description of businesses for the Grain and Ethanol Groups in Item 1 of this Annual Report on Form 10-K for further discussion.

(c) Other long-term liabilities include estimated obligations under our retiree healthcare programs and principal and interest payments for the financing arrangement on our headquarters. Obligations under the retiree healthcare programs are not fixed commitments and will vary depending on various factors, including the level of participant utilization and inflation. Our estimates of postretirement payments through 2024 have considered recent payment trends and actuarial assumptions.

(d) In 2018, the Company entered into an agreement to construct a bio-refinery. The facility is substantially complete, and the remaining construction commitment will be paid in 2020.

At December 31, 2019, we had standby letters of credit outstanding of $28.0 million.

Off-Balance Sheet Transactions

Our Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. We lease assets from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leasebacks. We also arrange non-recourse lease transactions under which we sell assets to a financial intermediary and assign the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, we generally provide ongoing maintenance and management services for the financial intermediary and receive a fee for such services. We have a total of 332 railcars that would be considered off balance sheet at December 31, 2019.

Industrial Revenue Bonds.

On December 3, 2019, we closed an industrial revenue bond transaction with the City of Colwich, Kansas (the "City") in order to receive a 20-year real property tax abatement on our renovated and newly-constructed ELEMENT ethanol facility. Pursuant to this transaction, the City issued a principal amount of $166.1 million of its industrial revenue bonds to us and then used the proceeds to purchase the land and facility from us. The City then leased the facilities back to us under a capital lease, the terms of which provide for the payment of basic rent in an amount sufficient to pay principal and interest on the bonds. Subsequent to the issuance of the bonds, the Company redeemed $165.1 million of the bonds, leaving $1 million issued and outstanding. Our obligation to pay rent under the lease is in the same amount and due on the same date as the City’s obligation to pay debt service on the bonds which we hold. The lease permits us to present the bonds at any time for cancellation, upon which our obligation to pay basic rent would be canceled. The bonds' maturity date is 2029, at which time the facilities will revert to us without costs. If we were to present the bonds for cancellation prior to maturity, a nominal fee would be incurred. We recorded the land and buildings as assets in property, plant, and equipment, net, on our Consolidated Balance Sheets. Because we own all outstanding bonds, have a legal right to set-off, and intend to set-off the corresponding lease and interest payment, we have netted the capital lease obligation with the bond asset. No amount for our obligation under the capital lease is reflected on our Consolidated Balance Sheet, nor do we reflect an amount for the corresponding industrial revenue bond asset (Note 15).

Critical Accounting Estimates

The process of preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Management evaluates these estimates and assumptions on an ongoing basis. Estimates and assumptions are based on historical experience and management's knowledge and understanding of current facts and circumstances. Actual results, under conditions and circumstances different from those assumed, may change from these estimates.

Certain of our accounting estimates are considered critical, as they are important to the depiction of the Company's financial statements and/or require significant or complex judgment by management. There are other items within our financial statements that require estimation, however, they are not deemed critical as defined above. Note 1 to the Consolidated Financial Statements in Item 8 describes our significant accounting policies which should be read in conjunction with our critical accounting estimates.

Management believes that the accounting for commodity inventories and commodity derivative contracts, including adjustments for counterparty risk, impairment of long-lived assets, goodwill and equity method investments and business combinations involve significant estimates and assumptions in the preparation of the Consolidated Financial Statements.

Commodity Inventories and Derivative Contracts

Commodity inventories are stated at their net realizable value, which approximates estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company marks to market all forward purchase and sale contracts for commodities and ethanol, over-the-counter grain and ethanol contracts, and exchange-traded futures and options contracts. The overall market for commodity inventories is very liquid and active; market value is determined by reference to prices for identical commodities a regulated commodity exchange (adjusted primarily for transportation costs); and the Company's commodity inventories may be sold without significant additional processing. The Company uses forward purchase and sale contracts and both exchange traded and over-the-counter contracts (such as derivatives generally used by the International Swap Dealers Association). Management estimates fair value based on exchange-quoted prices, adjusted for differences in local markets, as well as counter-party non-performance risk in the case of forward and over-the-counter contracts. The amount of risk, and therefore the impact to the fair value of the contracts, varies by type of contract and type of counterparty. With the exception of specific customers thought to be at higher risk, the Company looks at the contracts in total, segregated by contract type, in its quarterly assessment of non-performance risk. For those customers that are thought to be at higher risk, the Company makes assumptions as to performance based on past history and facts about the current situation. Changes in fair value are recorded as a component of cost of sales and merchandising revenues in the statement of operations.

Impairment of Long-Lived Assets, Goodwill, and Equity Method Investments

The Company's business segments are each highly capital intensive and require significant investment. Long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. This is done by evaluating the recoverability based on undiscounted projected cash flows, excluding interest. If an asset group is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset group's carrying amount exceeds its fair value.

Goodwill is tested for impairment at the reporting unit level, which is the operating segment or one level below the operating segment. The quantitative review for impairment takes into account our estimates of future cash flows. Our estimates of future cash flows are based upon a number of assumptions including operating costs, life of the assets, potential disposition proceeds, budgets and long-range plans. These factors are discussed in more detail in Note 19, Goodwill and Intangible Assets.

As part of the Company's on-going assessment of goodwill, management determined that in the third quarter a triggering event occurred due to the Company's market capitalization being less than the carrying value for a prolonged period as there was a significant decline in the Company's share price. Accordingly, an interim impairment test was performed during the third quarter over the Company's goodwill as well as its other intangible and long-lived assets. Based on the results of the impairment test, none of the Company's reportable segments recorded an impairment charge. The results of our September 30, 2019 impairment test indicated the estimated fair values of all reporting units that have goodwill were in excess of their carrying values, with the Trade Group's Grain storage and Merchandising and Food and Specialty Ingredients reporting units' excess fair value exceeding carrying value by approximately 3 and 8 percent, respectively. The remaining reporting unit within the Trade Group's reporting segment with goodwill, had an estimated fair value over carrying value of greater than 30 percent.

Our annual goodwill impairment test is performed as of October 1st each year. The results of our annual test were consistent with our interim test performed as of September 30, 2019 resulting in no goodwill impairment being recognized.

As our market capitalization remained below our book value through the end of the year, we performed an update to our annual test whereby management reviewed market influences and any relevant changes in assumptions from our annual test. Based on the methodologies used it was determined that the Company's reporting units estimated fair values continued to exceed that of their carrying values.

In addition, the Company holds investments in several companies that are accounted for using the equity method of accounting. The Company reviews its investments to determine whether there has been a decline in the estimated fair value of the investment that is below the Company's carrying value which is other than temporary. Other than consideration of past and current performance, these reviews take into account forecasted earnings which are based on management's estimates of future performance.

Management considers several factors to be significant when estimating fair value including expected financial outlook of the business, changes in the Company's stock price, the impact of changing market conditions on financial performance and expected future cash flows, the geopolitical environment and other factors. Deterioration in any of these factors may result in a lower fair value assessment, which could lead to impairment charges in the future. Specifically, actual results may vary from the Company's forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions could result in non-cash impairment charges.

Business Combinations

Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.

Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include but are not limited to the future expected cash flows of the acquired company's operations, the assumptions regarding the attrition rates associated with customer relationships and the period of time non-compete agreements will continue, and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

Uncertain Tax Positions

Conclusions on recognizing and measuring uncertain tax positions involve significant estimates and management judgment and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior year audit settlements. To account for uncertainty in income taxes, the Company evaluates the likelihood of a tax position based on the technical merits of the position, performs a subsequent measurement related to the maximum benefit and degree of likelihood, and determines the benefits to be recognized in the financial statements, if any. During the year ended December 31, 2019, the Company recognized tax benefits of $6.5 million for Federal Research and Development Credits ("R&D Credits") related to tax years 2015 to 2019. Unrecognized tax benefits of $22.4 million include $18.7 million recorded as a reduction of the deferred tax assets and refundable credits associated with the R&D Credits.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

The market risk inherent in the Company's market risk-sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices and interest rates as discussed below.

Commodity Prices

The Company's daily net commodity position consists of inventories, related purchase and sale contracts, exchange-traded futures, and over-the-counter contracts. The fair value of the position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. The Company has established controls to manage and limit risk exposure, which consists of a daily review of position limits and effects of potential market price moves on those positions.

A sensitivity analysis has been prepared to estimate the Company's exposure to market risk of its net commodity futures position. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in quoted market prices. The result of this analysis, which may differ from actual results, is as follows:



	December 31,
(in thousands)	2019			2018
Net commodity position	$	(8,969	)	$	3,373
Market risk	896			337

Foreign Currency

The Company has subsidiaries located outside the United States where the local currency is the functional currency. To reduce the risks associated with foreign currency exchange rate fluctuations, the Company enters into currency exchange contracts to minimize its foreign currency position related to transactions denominated primarily in the British pound, Mexican peso and Canadian dollar. These currencies represent the major functional or local currencies in which recurring business transactions occur. The Company does not use currency exchange contracts as hedges against amounts indefinitely invested in foreign subsidiaries and affiliates. The currency exchange contracts used are forward contracts, swaps with banks, exchange-traded futures contracts, and over-the-counter options. The changes in market value of such contracts have a high correlation to the price changes in the currency of the related transactions. The potential loss in fair value for such net currency position resulting from a hypothetical 10% adverse change in foreign currency exchange rates is not material.

Interest Rates

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 and credit ratings for similar types of borrowing arrangements. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below:



	December 31,
(in thousands)	2019		2018
Fair value of long-term debt, including current maturities	$	1,096,010	$	517,998
Carrying value less fair value	8,257		5,813
Market risk	7,573		6,611

Actual results may differ. The estimated fair value and market risk will vary from year to year depending on the total amount of long-term debt and the mix of variable and fixed rate debt.

Additionally, the Company may enter into interest rate swaps from time to time to manage our mix of fixed and variable interest rate debt effectively which may decrease market risk noted above. See Note 5 for further discussion on the impact of these hedging instruments.

Item 8. Financial Statements and Supplementary Data

The Andersons, Inc.

Index to Financial Statements



	Page No.
Reports of Independent Registered Public Accounting Firms - Deloitte & Touche LLP / KPMG LLP / PricewaterhouseCoopers LLP - Canada	33
Consolidated Balance Sheets	38
Consolidated Statements of Operations	40
Consolidated Statements of Comprehensive Income	41
Consolidated Statements of Cash Flows	42
Consolidated Statements of Equity	43
Notes to Consolidated Financial Statements	44
Schedule II - Consolidated Valuation and Qualifying Accounts	98

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

The Andersons, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Andersons, Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, based on our audits and the reports of the other auditors, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We did not audit the financial statements of Lansing Trade Group, LLC or Lux JV Treasury Holding Company S.à.r.l. as of and for the years ended December 31, 2018 and 2017, the Company’s investments which were accounted for by use of the equity method. The accompanying financial statements of the Company include its equity investment in Lansing Trade Group, LLC of $102 million and Lux JV Treasury Holding Company S.à.r.l. of $45 million as of December 31, 2018, and its equity in earnings in Lansing Trade Group, LLC of $10.4 million and $4.0 million, and Lux JV Treasury Holding Company S.à.r.l. of $2.2 million and $0.5 million, for the years ended December 31, 2018 and 2017, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Lansing Trade Group, LLC and Lux JV Treasury Holding Company S.à.r.l., is based solely on the reports of the other auditors.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting based on our audit.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, effective January 1, 2019, the Company adopted FASB Accounting Standards Update 2016-02, Leases (ASC 842), using the modified retrospective transition approach and changed its method of accounting for revenue from contracts with customers in 2018 due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Income Taxes - Uncertain Tax Positions - Refer to Notes 1 and 8 to the consolidated financial statements

Critical Audit Matter Description

Conclusions on recognizing and measuring uncertain tax positions involve significant estimates and management judgment and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior year audit settlements. To account for uncertainty in income taxes, the Company evaluates the likelihood of a tax position based on the technical merits of the position, performs a subsequent measurement related to the maximum benefit and degree of likelihood, and determines the benefits to be recognized in the financial statements, if any. During the year ended December 31, 2019, the Company recognized tax benefits of $6.5 million for Federal Research & Development Credits (“R&D Credits”) related to tax years 2015 to 2019. Unrecognized tax benefits of $22.4 million include $18.7 million recorded as a reduction of the deferred tax assets and refundable credits associated with the R&D Credits.

Given the complexity and the subjective nature of the use of R&D Credits, evaluating management’s estimates relating to their determination of uncertain tax positions require extensive audit effort and a high degree of auditor judgment, including involvement of our income tax specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures to evaluate management’s estimates of uncertain tax positions related to the use of R&D Credits included the following:


•	We evaluated the appropriateness and consistency of management’s methods and assumptions used in the identification, recognition, measurement, and disclosure of uncertain tax positions related to R&D Credits, which included testing the effectiveness of the related internal controls.


•	We read and evaluated management’s documentation, including relevant accounting policies and information obtained by management from outside tax specialists, that detailed the basis of the uncertain tax position.


•	We tested the reasonableness of management’s judgments regarding the future resolution of the uncertain tax position, including an evaluation of the technical merits of the uncertain tax position.


•	For those uncertain tax positions that had not been effectively settled, we evaluated whether management had appropriately considered new information that could significantly change the recognition, measurement or disclosure of the uncertain tax.


•	We evaluated the reasonableness of management’s estimates by considering how tax law, including statutes, regulations and case law, impacted management’s judgments.

Basis of Consolidation of The Andersons Marathon Holdings LLC - Refer to Note 1 to the consolidated financial statements

Critical Audit Matter Description

At inception of joint venture transactions, the Company identifies entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the primary beneficiary of its operations. A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company consolidates investments in VIEs when the Company is determined to be the primary beneficiary. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance. The Company evaluates its interests in VIE’s on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE. On October 1, 2019, the Company entered into an agreement with Marathon Petroleum Corporation to merge The Andersons Albion Ethanol LLC, The Andersons Clymers Ethanol LLC, The Andersons Marathon Ethanol LLC and the Company's wholly-owned subsidiary, The Andersons Denison Ethanol LLC, into a new legal entity, The Andersons Marathon Holdings LLC ("TAMH"). The Company evaluated its interest in TAMH and determined that TAMH is a VIE and that the Company is the primary beneficiary of TAMH due to the fact that the Company had both the power to direct the activities that most significantly impact TAMH and the obligation to absorb losses or the right to receive benefits from TAMH. Therefore, the Company consolidated TAMH in its financial statements.

The determination of whether the Company was the primary beneficiary of TAMH required a high degree of auditor judgment and an increased extent of effort in evaluating the audit evidence obtained related to the Company’s ability to direct the activities that impact the VIE due to the complexity of the agreements.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures included the following:


•	We tested the effectiveness of controls over management’s consolidation analysis.


•	We obtained and analyzed the agreements and evaluated the interests of each party.


•	With the assistance of professionals in our firm having expertise in VIE accounting we evaluated the Company’s conclusions regarding the factors that led it to consolidate TAMH.

/s/ DELOITTE & TOUCHE LLP

Cleveland, Ohio

February 27, 2020

We have served as the Company's auditor since 2015.

Report of Independent Registered Public Accounting Firm

The Members and Board of Managers

Lansing Trade Group, LLC:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Lansing Trade Group, LLC and subsidiaries (the Company) as of December 31, 2018, the related consolidated statements of comprehensive income, equity, and cash flows for the year ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We did not audit the consolidated financial statements of Lux JV Treasury Holding Company S.a.r.l (Lux JV) (a 50 percent owned investee company). The Company’s investment in Lux JV at December 31, 2018 was $44.7 million and its equity in earnings of Lux JV was $1.6 million for the year ended December 31, 2018. The consolidated financial statements of Lux JV were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Lux JV, is based solely on the report of the other auditors.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit and the report of the other auditors provides a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2017.

Kansas City, Missouri

February 27, 2019

Report of Independent Registered Public Accounting Firm

To the Members and Board of Managers

Lansing Trade Group, LLC:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Lansing Trade Group, LLC and subsidiaries (the Company) as of December 31, 2017, the related consolidated statements of comprehensive income, equity, and cash flows for the year ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We did not audit the consolidated financial statements of Lux JV Treasury Holding Company S.a.r.l. (a 50% percent owned investee company). The Company’s investment in Lux JV Treasury Holding Company S.a.r.l. at December 31, 2017 was $46.7 million and its equity in earnings of Lux JV Treasury Holding Company S.a.r.l. was $0.7 million for the year ended December 31, 2017. The consolidated financial statements of Lux JV Treasury Holding Company S.a.r.l. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Lux JV Treasury Holding Company S.a.r.l., is based solely on the report of the other auditors.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2017.

Kansas City, Missouri

February 26, 2018

Report of Independent Registered Public Accounting Firm

To the Board of Managers and Shareholders of

Lux JV Treasury Holding Company S.à r.l.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Lux JV Treasury Holding Company

S.à r.l. and its subsidiaries, (together, the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (not included herein) (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of operations and their cash flows for each of the three years in the period ended

December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants

February 21, 2019

London, Canada

We have served as the Company's auditor since 2013.

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

	December 31, 2019		December 31, 2018
Assets
Current assets:
Cash, cash equivalents and restricted cash	$	i 54,895	$	i 22,593
Accounts receivable, less allowance for doubtful accounts of $12,781 in 2019; $8,325 in 2018	i 536,367		i 207,285
Inventories (Note 2)	i 1,170,536		i 690,804
Commodity derivative assets – current (Note 5)	i 107,863		i 51,421
Other current assets	i 75,681		i 51,095
Total current assets	i 1,945,342		i 1,023,198
Other assets:
Commodity derivative assets – noncurrent (Note 5)	i 949		i 480
Goodwill	i 135,360		i 6,024
Other intangible assets, net	i 175,312		i 99,138
Right of use assets, net	i 76,401		i —
Equity method investments	i 23,857		i 242,326
Other assets	i 20,804		i 22,341
Total other assets	i 432,683		i 370,309
Rail Group assets leased to others, net (Note 3)	i 584,298		i 521,785
Property, plant and equipment, net (Note 3)	i 938,418		i 476,711
Total assets	$	i 3,900,741	$	i 2,392,003

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

	December 31, 2019			December 31, 2018
Liabilities and equity
Current liabilities:
Short-term debt (Note 4)	$	i 147,031		$	i 205,000
Trade and other payables	i 873,081			i 462,535
Customer prepayments and deferred revenue	i 133,585			i 32,533
Commodity derivative liabilities – current (Note 5)	i 46,942			i 32,647
Accrued expenses and other current liabilities	i 176,381			i 79,046
Current maturities of long-term debt (Note 4)	i 62,899			i 21,589
Total current liabilities	i 1,439,919			i 833,350
Long-term lease liabilities	i 51,091			i —
Commodity derivative liabilities – noncurrent (Note 5)	i 505			i 889
Employee benefit plan obligations (Note 6)	i 25,359			i 22,542
Long-term debt, less current maturities (Note 4)	i 1,016,248			i 496,187
Deferred income taxes (Note 8)	i 146,155			i 130,087
Other long-term liabilities	i 25,809			i 32,184
Total liabilities	i 2,705,086			i 1,515,239
Commitments and contingencies (Note 15)
Shareholders’ equity:
Common shares, without par value (63,000 shares authorized; 33,550 shares issued in 2019; 29,430 shares issued in 2018)	i 137			i 96
Preferred shares, without par value (1,000 shares authorized; none issued)	i —			i —
Additional paid-in-capital	i 345,359			i 224,396
Treasury shares, at cost (207 in 2019; 936 in 2018)	( i 7,342		)	( i 35,300		)
Accumulated other comprehensive loss	( i 7,231		)	( i 6,387		)
Retained earnings	i 642,687			i 647,517
Total shareholders’ equity of The Andersons, Inc.	i 973,610			i 830,322
Noncontrolling interests	i 222,045			i 46,442
Total equity	i 1,195,655			i 876,764
Total liabilities and equity	$	i 3,900,741		$	i 2,392,003

The Notes to Consolidated Financial Statements are an integral part of these statements.

The Andersons, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)



	Year ended December 31,
	2019			2018			2017
Sales and merchandising revenues	$	i 8,170,191		$	i 3,045,382		$	i 3,686,345
Cost of sales and merchandising revenues	i 7,652,299			i 2,743,377			i 3,367,546
Gross profit	i 517,892			i 302,005			i 318,799
Operating, administrative and general expenses	i 436,842			i 257,872			i 286,993
Asset impairment	i 41,212			i 6,272			i 10,913
Goodwill impairment	i —			i —			i 59,081
Interest expense	i 59,691			i 27,848			i 21,567
Other income:
Equity in earnings (losses) of affiliates, net	( i 7,359		)	i 27,141			i 16,723
Gain from remeasurement of equity method investments, net	i 35,214			i —			i —
Other income, net	i 20,109			i 16,002			i 22,507
Income (loss) before income taxes	i 28,111			i 53,156			( i 20,525		)
Income tax provision (benefit)	i 13,051			i 11,931			( i 63,134		)
Net income	i 15,060			i 41,225			i 42,609
Net income (loss) attributable to the noncontrolling interest	( i 3,247		)	( i 259		)	i 98
Net income attributable to The Andersons, Inc.	$	i 18,307		$	i 41,484		$	i 42,511
Per common share:
Basic earnings attributable to The Andersons, Inc. common shareholders	$	i 0.56		$	i 1.47		$	i 1.51
Diluted earnings attributable to The Andersons, Inc. common shareholders	$	i 0.55		$	i 1.46		$	i 1.50

The Notes to Consolidated Financial Statements are an integral part of these statements.

The Andersons, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)



	Year ended December 31,
	2019			2018			2017
Net income	$	i 15,060		$	i 41,225		$	i 42,609
Other comprehensive income (loss), net of tax:
Change in fair value of convertible preferred securities (net of income tax of $0 for all periods)	i —			( i 86		)	i 344
Change in unrecognized actuarial gain and prior service cost (net of income tax of $1,267, $(879) and $(1,809))	( i 4,142		)	i 359			i 6,138
Foreign currency translation adjustments (net of income tax of $(403), $0 and $0)	i 12,615			( i 3,834		)	i 3,286
Cash flow hedge activity (net of income tax of $3,081, $42 and $0)	( i 9,317		)	( i 126		)	i —
Other comprehensive income (loss)	( i 844		)	( i 3,687		)	i 9,768
Comprehensive income	i 14,216			i 37,538			i 52,377
Comprehensive income (loss) attributable to the noncontrolling interests	( i 3,247		)	( i 259		)	i 98
Comprehensive income attributable to The Andersons, Inc.	$	i 17,463		$	i 37,797		$	i 52,279

The Notes to Consolidated Financial Statements are an integral part of these statements.

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

	Year ended December 31,
	2019			2018			2017
Operating Activities
Net income	$	i 15,060		$	i 41,225		$	i 42,609
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization	i 146,166			i 90,297			i 86,412
Bad debt expense	i 4,007			i 542			i 3,000
Equity in (earnings) losses of affiliates, net of dividends	i 7,671			( i 23,167		)	( i 10,494		)
Loss (gain) on sales of assets	( i 7,063		)	( i 5,218		)	( i 14,401		)
Gains on sales of Rail Group assets and related leases	( i 4,122		)	( i 9,558		)	( i 10,990		)
Stock based compensation expense	i 16,229			i 6,624			i 6,097
Deferred income tax	i 5,114			i 11,018			( i 63,234		)
Goodwill impairment	i —			i —			i 59,081
Asset impairment	i 41,212			i 6,272			i 10,913
Gain from remeasurement of equity method investments, net	( i 35,214		)	i —			i —
Other	i 3,540			( i 1,451		)	( i 55		)
Changes in operating assets and liabilities:
Accounts receivable	i 1,487			( i 24,788		)	i 9,781
Inventories	( i 1,578		)	( i 44,060		)	i 16,141
Commodity derivatives	i 21,714			( i 16,610		)	i 20,285
Other assets	i 30,497			i 3,290			( i 74,237		)
Payables and other accrued expenses	i 103,842			( i 69,935		)	( i 5,623		)
Net cash provided by (used in) operating activities	i 348,562			( i 35,519		)	i 75,285
Investing Activities
Acquisition of businesses, net of cash acquired	( i 102,580		)	( i 2,248		)	( i 3,507		)
Purchases of Rail Group assets	( i 105,254		)	( i 167,005		)	( i 143,020		)
Proceeds from sale of Rail Group assets	i 18,090			i 79,439			i 36,896
Purchases of property, plant and equipment and capitalized software	( i 165,223		)	( i 142,579		)	( i 34,602		)
Proceeds from sale of assets and businesses	i 30,617			i 47,486			i 33,879
Proceeds from returns of investments in affiliates	i —			i —			i 1,069
Purchase of investments	( i 1,490		)	( i 1,086		)	( i 5,679		)
Other	i 808			i —			i 1,470
Net cash used in investing activities	( i 325,032		)	( i 185,993		)	( i 113,494		)
Financing Activities
Net change in short-term borrowings	( i 278,824		)	i 183,000			( i 8,059		)
Proceeds from issuance of long-term debt	i 922,594			i 132,000			i 85,175
Payments of long-term debt	( i 608,483		)	( i 121,090		)	( i 57,189		)
Proceeds from long-term financing agreements	i —			i —			i 12,195
Proceeds from noncontrolling interest owner	i 4,714			i 46,736			( i 377		)
Payments of debt issuance costs	( i 6,561		)	( i 1,446		)	( i 2,024		)
Acquisition of noncontrolling interest	i —			( i 10,000		)	i —
Dividends paid	( i 22,118		)	( i 18,639		)	( i 18,152		)
Other	( i 2,615		)	( i 1,375		)	( i 1,071		)
Net cash provided by financing activities	i 8,707			i 209,186			i 10,498
Effect of exchange rates on cash, cash equivalents and restricted cash	i 65			i —			i —
Increase (decrease) in cash, cash equivalents and restricted cash	i 32,302			( i 12,326		)	( i 27,711		)
Cash, cash equivalents and restricted cash at beginning of year	i 22,593			i 34,919			i 62,630
Cash, cash equivalents and restricted cash at end of year	$	i 54,895		$	i 22,593		$	i 34,919

The Notes to Consolidated Financial Statements are an integral part of these statements.

The Andersons, Inc.

Consolidated Statements of Equity

(In thousands, except per share data)

The Andersons, Inc. Shareholders’ Equity

Common

Additional

Paid-in

Capital

Treasury

Accumulated

Other

Comprehensive

Loss

Retained

Earnings

Noncontrolling

Interests

Total

Balance at January 1, 2017

i 96

i 222,910

( i 45,383

)

( i 12,468

)

i 609,206

i 16,336

i 790,697

Net Income

i 42,511

i 98

i 42,609

Other comprehensive income

i 9,768

Cash distributions to noncontrolling interest

( i 377

)

( i 377

)

Other changes to noncontrolling interest

( i 8,360

)

( i 8,360

)

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of ($323) (138 shares)

i 1,707

i 5,007

i 6,714

Dividends declared ($0.645 per common share)

( i 18,152

)

( i 18,152

)

Performance share unit dividends

i 5

i 64

( i 69

)

i —

Balance at December 31, 2017

i 96

i 224,622

( i 40,312

)

( i 2,700

)

i 633,496

i 7,697

i 822,899

Net income (loss)

i 41,484

( i 259

)

i 41,225

Other comprehensive loss

( i 3,687

)

( i 3,687

)

Cash received from (paid to) noncontrolling interest, net

( i 2,268

)

i 39,004

i 36,736

Adoption of accounting standard, net of income tax of $3,492

( i 7,818

)

( i 7,818

)

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of ($267) (127 shares)

i 2,042

i 4,871

i 6,913

Dividends declared ($0.665 per common share)

( i 19,504

)

( i 19,504

)

Restricted share award dividend equivalents

i 141

( i 141

)

i —

Balance at December 31, 2018

i 96

i 224,396

( i 35,300

)

( i 6,387

)

i 647,517

i 46,442

i 876,764

Net income (loss)

i 18,307

( i 3,247

)

i 15,060

Other comprehensive loss

( i 12,734

)

( i 12,734

)

Amounts reclassified from accumulated other comprehensive loss

i 11,890

Cash received from noncontrolling interest, net

i 164

i 4,715

i 4,879

Noncontrolling interests recognized in connection with business combination

i 5,112

i 174,135

i 179,247

Cumulative adjustment for adoption of leasing standard, net of income tax of ($76)

( i 550

)

( i 550

)

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (723 shares)

( i 12,121

)

i 27,708

i 15,587

Dividends declared ($0.685 per common share)

( i 22,329

)

( i 22,329

)

Shares issued for acquisition

i 41

i 127,800

i 127,841

Restricted share award dividend equivalents

i 8

i 250

( i 258

)

i —

Balance at December 31, 2019

i 137

i 345,359

( i 7,342

)

( i 7,231

)

i 642,687

i 222,045

i 1,195,655

The Notes to Consolidated Financial Statements are an integral part of these statements.

The Andersons, Inc.

Notes to Consolidated Financial Statements

1. i Summary of Significant Accounting Policies

Basis of Consolidation

These Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All material 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.

At inception of joint venture transactions, we identify entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the primary beneficiary of its operations. A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company consolidates investments in VIEs when the Company is determined to be the primary beneficiary. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance.

The Company evaluates its interests in VIE’s on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.

On October 1, 2019, the Company entered into an agreement with Marathon Petroleum Corporation to merge The Andersons Albion Ethanol LLC (“TAAE”), The Andersons Clymers Ethanol LLC (“TACE”), The Andersons Marathon Ethanol LLC (“TAME”) and the Company's wholly-owned subsidiary, The Andersons Denison Ethanol LLC (“TADE”), into a new legal entity, The Andersons Marathon Holdings LLC ("TAMH"). The Company evaluated its interest in TAMH and determined that TAMH is a VIE and that the Company is the primary beneficiary of TAMH due to the fact that the Company had both the power to direct the activities that most significantly impact TAMH and the obligation to absorb losses or the right to receive benefits from TAMH. Therefore, the Company consolidated TAMH in its financial statements.

On March 2, 2018, the Company invested in ELEMENT. The Company owns i 51% of ELEMENT and ICM, Inc. owns the remaining i 49% interest. As part of the Company’s investment into ELEMENT, the Company and ICM, Inc. entered into a number of agreements with the entity. Most notably, ICM, Inc. will operate the facility under a management contract and manage the initial construction of the facility, while the Company will provide corn origination, ethanol marketing, and risk management services. The Company evaluated its interest in ELEMENT and determined that ELEMENT is a VIE and that the Company is the primary beneficiary of ELEMENT due to the fact that the Company had both the power to direct the activities that most significantly impact ELEMENT and the obligation to absorb losses or the right to receive benefits from ELEMENT. Therefore, the Company consolidates ELEMENT.

/ i

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash and short-term investments with an initial maturity of three months or less. The carrying values of these assets approximate their fair values.

The Company had restricted cash of $ i 8.7 million as of December 31, 2019. The restricted cash balance is a result of an ongoing royalty claim assumed in the TAMH merger and, accordingly, is now in the Consolidated Financial Statements of the Company.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and may bear interest if past due. The allowance for doubtful accounts is the best estimate of the current expected credit losses in existing accounts receivable. The allowance for doubtful accounts is reviewed quarterly. The allowance is based both on specific identification of potentially uncollectible accounts and the application of a consistent policy, based on historical experience, to estimate the allowance necessary for the remaining accounts receivable. For those customers that are thought to be at higher risk, the Company makes assumptions as to collectability based on past history and facts about the current situation. Account balances are charged off against the allowance when it becomes more certain that the receivable will not be recovered. The Company manages its exposure to counterparty credit risk through credit analysis and approvals, credit limits and monitoring procedures.

Commodity Derivatives and Inventories

The Company's operating results can be affected by changes to commodity prices. The Trade and Ethanol businesses have established “unhedged” position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to mitigate the price risk associated with those contracts and inventory). To reduce the exposure to market price risk on commodities owned and forward commodity 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 forward purchase and sale 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 i one year.

The Company accounts for its commodity derivatives at fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, fair value is adjusted for differences in local markets and non-performance risk. While the Company considers certain of its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges.

Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in cost of sales and merchandising revenues in the Consolidated Statements of Operations. Additional information about the fair value of the Company's commodity derivatives is presented in Notes 5 and 11 to the Consolidated Financial Statements.

Grain and other agricultural inventories, which are commodities and may be acquired under provisionally priced contracts, are stated at their net realizable value, which approximates estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

All other inventories are stated at the lower of cost or net realizable value. Cost is determined by the average cost method. Additional information about inventories is presented in Note 2 to the Consolidated Financial Statements.

Derivatives - Master Netting Arrangements

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 futures, 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 Consolidated Balance Sheets. Additional information about the Company's master netting arrangements is presented in Note 5 to the Consolidated Financial Statements.

Derivatives - Interest Rate and Foreign Currency Contracts

The Company periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. The Company has long-term interest rate swaps recorded in other assets or other long-term liabilities that expire from 2021 to 2025 and have been designated as cash flow hedges; accordingly, changes in the fair value of the instruments are recognized in other comprehensive income. The Company has other interest rate contracts recorded in other assets that are not designated as hedges. While the Company considers all of its derivative positions to be effective economic hedges of specified risks, these interest rate contracts for which hedge accounting is not applied are recorded on the Consolidated Balance Sheets in either other current assets or liabilities (if short-term in nature) or in other assets or other long-term liabilities (if non-current in nature), and changes in fair value are recognized in current earnings as interest expense. Upon termination of a derivative instrument or a change in the hedged item, any remaining fair value recorded on the balance sheet is recorded as interest expense consistent with the cash flows associated with the underlying hedged item. Information regarding the nature and terms of the Company's interest rate derivatives is presented in Note 5 to the Consolidated Financial Statements.

Marketing Agreement

The Company has a marketing agreement that covers certain of its grain facilities, some of which are leased from Cargill. Under the five-year amended and restated agreement (renewed in June 2018 and ending May 2023), any grain the Company sells to Cargill is at market price. Income earned from operating the facilities (including buying, storing and selling grain and providing grain marketing services to its producer customers) over a specified threshold is shared equally with Cargill. Measurement of this threshold is made on a cumulative basis and cash is paid to Cargill on an annual basis. The Company recognizes its pro rata share of this profit-sharing arrangement as a reduction of revenue in our Consolidated Statements of Operations every month and accrues for any payment owed to Cargill. The impact of the profit-sharing arrangement to the Company's revenues were de minimis, $ i 0.2 million and $ i 3.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Rail Group Assets Leased to Others

The Company's Rail Group purchases, leases, markets and manages railcars and barges for third parties and for internal use. Rail Group assets to which the Company holds title are shown on the balance sheet in one of two categories - other current assets (for those that are available for sale) or Rail Group assets leased to others. Rail Group assets leased to others, both on short and long-term leases, are classified as long-term assets and are depreciated over their estimated useful lives.

Railcars have statutory lives of either i 40 or i 50 years, measured from the date built. Barges have estimated lives of i 30 to i 40 years, measured from the date built. At the time of purchase, the remaining life is used in determining useful lives which are depreciated on a straight-line basis. Repairs and maintenance costs are charged to expense as incurred. Additional information regarding Rail Group assets leased to others is presented in Note 3 to the Consolidated Financial Statements.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost. Repairs and maintenance costs are charged to expense as incurred, while betterments that extend useful lives are capitalized. Depreciation is provided over the estimated useful lives of the individual assets, by the straight-line method. Estimated useful lives are generally as follows: land improvements - i 16 years; leasehold improvements - the shorter of the lease term or the estimated useful life of the improvement, ranging from i 3 to i 20 years; buildings and storage facilities - i 10 to i 40 years; and machinery and equipment - i 3 to i 20 years. The cost of assets retired or otherwise disposed of and the accumulated depreciation thereon are removed from the accounts, with any gain or loss realized upon sale or disposal credited or charged to operations.

Additional information regarding the Company's property, plant and equipment is presented in Note 3 to the Consolidated Financial Statements.

Deferred Debt Issue Costs

Costs associated with the issuance of debt are deferred and recorded net with debt. These costs are amortized, as a component of interest expense, over the earlier of the stated term of the debt or the period from the issue date through the first early payoff date without penalty, or the expected payoff date if the loan does not contain a prepayment penalty. Deferred costs associated with the borrowing arrangement with a syndication of banks are amortized over the term of the agreement.

Goodwill and Intangible Assets

Goodwill is subject to annual impairment tests or more often when events or circumstances indicate that the carrying amount of goodwill may be impaired. A goodwill impairment loss is recognized to the extent the carrying amount of goodwill exceeds the business enterprise value. Additional information about the Company's goodwill and other intangible assets is presented in Note 19 to the Consolidated Financial Statements.

Acquired intangible assets are recorded at cost, less accumulated amortization, if not indefinite lived. In addition, we capitalize the salaries and payroll-related costs of employees and consultants who devote time to the development of internal-use software projects. If a project constitutes an enhancement to previously-developed software, we assess whether the enhancement is significant and creates additional functionality to the software, thus qualifying the work incurred for capitalization. Once a project is complete, we estimate the useful life of the internal-use software. Changes in our estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the period.

Amortization of intangible assets is provided over their estimated useful lives (generally i 1 to i 10 years) on the straight-line method.

/ i

Impairment of Long-lived Assets and Equity Method Investments

Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of the assets to the undiscounted future net cash flows the Company expects to generate with the assets. If such assets are considered to be impaired, the Company recognizes an impairment loss for the amount by which the carrying amount of the assets exceeds the fair value of the assets.

The Company reviews its equity method investments to determine whether there has been a decline in the estimated fair value of the investment that is below the Company's carrying value which is other-than-temporary. Other than consideration of past and current performance, these reviews take into account forecasted earnings which are based on management's estimates of future performance.

Provisionally Priced Commodity Contracts

Accounts payable includes certain amounts related to commodity purchases for which, even though the Company has taken ownership and possession of the commodity the final purchase price has not been fully established. If the futures and basis components are unpriced, it is referred to as a delayed price payable. If the futures component has not been established, but the basis has been set, it is referred to as a basis payable. The unpriced portion of these payables will be exposed to changes in the fair value of the underlying commodity based on quoted prices on commodity exchanges (or basis levels). Those payables that are fully priced are not considered derivative instruments.

The Company also enters into contracts with customers for risk management purposes that allow the customers to effectively unprice the futures component of their inventory for a period of time, subjecting the commodities to market fluctuations. The Company records an asset or liability for the market value changes of the commodities over the life of the contracts based on quoted exchange prices. See Note 11 for additional discussion on these instruments.

Stock-Based Compensation

Stock-based compensation expense for all stock-based compensation awards is based on the estimated grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, adjusted for revisions to performance expectations. Additional information about the Company's stock compensation plans is presented in Note 17 to the Consolidated Financial Statements.

Deferred Compensation Liability

Included in accrued expenses are $ i 6.7 million and $ i 7.5 million at December 31, 2019 and 2018, respectively, of deferred compensation for certain employees who, due to Internal Revenue Service guidelines, may not take full advantage of the Company's qualified defined contribution plan. Assets funding this plan are recorded at fair value in other current assets with changes in the fair value recorded in earnings as a component of other income, net. Changes in the fair value of the deferred compensation liability are reflected in earnings as a component of operating, administrative, and general expenses.

Revenue Recognition

The Company’s revenue consists of sales from commodity contracts that are accounted for under ASC 815, Derivatives and Hedging (ASC 815), rental revenues from leases that are accounted for under ASC 842, Leases, and sales of other products and services that are accounted for under ASC 606, Revenue from Contracts with Customers (ASC 606).

Revenue from commodity contracts (ASC 815)

Revenue from commodity contracts primarily relates to forward sales of commodities in the Company’s Trade and Ethanol segments, such as corn, soybeans, wheat, oats, ethanol, and corn oil, which are accounted for as derivatives at fair value under ASC 815. These forward sales meet the definition of a derivative under ASC 815 as they have an underlying (e.g. the price of corn), a notional amount (e.g. metric tons), no initial net investment and can be net settled since the commodity is readily convertible to cash. The Company does not apply the normal purchase and normal sale exception available under ASC 815 to these contracts.

Revenue from commodity contracts is recognized in Sales and merchandising revenues for the contractually stated amount when the contracts are settled. Settlement of the commodity contracts generally occurs upon shipment or delivery of the product, when title and risks and rewards of ownership transfers to the customer. Prior to settlement, these forward sales contracts are recognized at fair value with the unrealized gains or losses recorded within Cost of sales and merchandising revenues. Additional information about the fair value of the Company's commodity derivatives is presented in Notes 5 and 11 to the Consolidated Financial Statements.

There are certain transactions that allow for pricing to occur after title of the goods has passed to the customer. In these cases, the Company continues to report the goods in inventory until it recognizes the sales revenue once the price has been determined. Direct ship commodity sales (where the Company never takes physical possession of the commodity) are recognized based on the terms of the contract.

Certain of the Company's operations provide for customer billings, deposits or prepayments for product that is stored at the Company's facilities. The sales and gross profit related to these transactions are not recognized until the product is shipped in accordance with the previously stated revenue recognition policy and these amounts are classified as a current liability titled “Customer prepayments and deferred revenue”.

Revenue from leases (ASC 842)

The Company has a diversified fleet of car types (boxcars, gondolas, covered and open top hopper cars, flat cars, tank cars and pressure differential cars), locomotives and barges serving a broad customer base. While most of these assets are owned by the Company, it also leases assets from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leases. The Company's Rail Group leases these assets to customers under operating leases, which includes managing the assets for third parties. In exchange for conveying the right to use these railcars to the lessee, the Company receives a fixed monthly rental payment, which is typically expressed on a “per car” basis in the lease agreement. Revenue from these arrangements is recognized on a straight-line basis over the term of the lease.

Certain of the Company's leases include monthly lease fees that are contingent upon some measure of usage (“per diem” leases). This monthly usage is tracked, billed and collected by third-party service providers and funds are generally remitted to the Company along with usage data three months after they are earned. The Company records lease revenue for these per diem arrangements based on recent historical usage patterns and records a true-up adjustment when the actual data is received. Such true-up adjustments were not significant for any period presented.

Revenue related to railcar or other asset servicing and maintenance contracts is recognized over the term of the lease or service contract.

Revenue from contracts with customers (ASC 606)

Revenue from contracts with customers accounted for under ASC 606 is primarily generated in the Plant Nutrient segment through the sale of agricultural and related plant nutrients, corncob-based products, pelleted lime and gypsum products. The Company recognizes revenue from these contracts at a point in time when it satisfies a performance obligation by transferring control of a product to a customer, generally when legal title and risks and rewards of ownership transfer to the customer.

Additional information regarding our revenue recognition policy under ASC 606 is presented in Note 7 to the Consolidated Financial Statements.

i i

Rail Lease Accounting

i The Company recognizes a right of use asset and a corresponding lease liability equal to the present value of the remaining minimum lease payments related to both its operating and finance rail leases. Additional information about leasing activities is presented in Note 14 to the Consolidated Financial Statements.

Income Taxes

Income tax expense for each period includes current tax expense plus deferred expense, which is related to the change in deferred income tax assets and liabilities. Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of assets and liabilities and are measured using enacted tax rates and laws governing periods in which the differences are expected to reverse. The Company evaluates the realizability of deferred tax assets and provides a valuation allowance for amounts that management does not believe are more likely than not to be recoverable, as applicable.

The annual effective tax rate is determined by income tax expense from continuing operations as a percentage of pretax book income. Differences in the effective tax rate and the statutory tax rate may be due to permanent items, tax credits, foreign tax rates and state tax rates in jurisdictions in which the Company operates, or changes in valuation allowances.

The Company records reserves for uncertain tax positions when, despite the belief that tax return positions are fully supportable, it is anticipated that certain tax return positions are likely to be challenged and that the Company may not prevail. These reserves are adjusted for changing facts and circumstances, such as the progress of a tax audit or the lapse of statutes of limitations.

Additional information about the Company’s income taxes is presented in Note 8 to the Consolidated Financial Statements.

Employee Benefit Plans

The Company provides full-time employees hired before January 1, 2003 with postretirement health care benefits. In order to measure the expense and funded status of these employee benefit plans, management makes several estimates and assumptions, including employee turnover rates, anticipated mortality rates and anticipated future healthcare cost trends. These estimates and assumptions are based on the Company's historical experience combined with management's knowledge and understanding of current facts and circumstances. The selection of the discount rate is based on an index given projected plan payouts. Additional information about the Company's employee benefit plans is presented in Note 6 to the Consolidated Financial Statements.

Advertising

Advertising costs are expensed as incurred. Advertising expense of $ i 2.5 million, $ i 1.9 million and $ i 2.5 million in 2019, 2018, and 2017, respectively, is included in operating, administrative and general expenses.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") (No. 2016-02, Leases (ASC 842). The FASB issued subsequent amendments to the initial guidance in July 2018 with ASU 2018-10 and in August 2018 with ASU 2018-11. ASC 842 supersedes the current accounting for leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease

classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. Effective January 1, 2019, the Company adopted the standard using the Comparative Under ASC 840 method, which requires lease assets and liabilities to be recognized in the 2019 balance sheet and statement of equity and forgo the comparative reporting requirements under the modified retrospective transition method. The Company also made an accounting policy election to keep short-term leases less than twelve months off the balance sheet for all classes of underlying assets, as well as elected to use the practical expedient that allows the combination of lease and non-lease contract components in all of its underlying asset categories. In addition, the Company elected to apply the package of practical expedients that allows entities to forego reassessing at the transition date: (1) whether any expired or existing contracts are or contain leases; (2) lease classification for any expired or existing leases; and (3) whether unamortized initial direct costs for existing leases meet the definition of initial direct costs under the new guidance. See Note 14 for additional information.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. The Company adopted this standard in the current year which did not have a material impact on its financial statements or disclosures.

Recent Accounting Pronouncements Not Yet Effective

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

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The FASB issued subsequent amendments to the initial guidance in November 2018, April 2019 and May 2019 with ASU 2018-19, ASU 2019-04 and ASU 2019-05, respectively. This update changes the accounting for credit losses on loans and held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. This includes allowances for trade receivables. We have evaluated the impact of this new standard on our consolidated financial statements noting it is not expected to be material. The guidance is effective for fiscal years beginning after December 15, 2019 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted, but the Company does not plan to do so.

2. i Inventories

Major classes of inventories are as follows:



	December 31,
(in thousands)	2019		2018
Grain and other agricultural products	$	i 907,482	$	i 527,471
Frac sand and propane	i 15,438		i —
Ethanol and co-products	i 95,432		i 11,918
Plant nutrients and cob products	i 146,164		i 145,693
Railcar repair parts	i 6,020		i 5,722
	$	i 1,170,536	$	i 690,804

Inventories on the Consolidated Balance Sheets at December 31, 2019 do not include i 6.4 million bushels of grain held in storage for others. Grain and other agricultural product inventories held in storage for others was de minimis as of December 31, 2018. The Company does not have title to the inventory and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.

3. i Property, Plant and Equipment

The components of property, plant and equipment are as follows:



	December 31,
(in thousands)	2019		2018
Land	$	i 40,442	$	i 29,739
Land improvements and leasehold improvements	i 103,148		i 68,826
Buildings and storage facilities	i 373,961		i 284,998
Machinery and equipment	i 835,156		i 393,640
Construction in progress	i 59,993		i 102,394
	i 1,412,700		i 879,597
Less: accumulated depreciation	i 474,282		i 402,886
	$	i 938,418	$	i 476,711

Capitalized interest totaled $ i 2.2 million and $ i 1.7 million for the years ended December 31, 2019 and 2018, respectively.

Depreciation expense on property, plant and equipment amounted to $ i 82.3 million, $ i 46.5 million and $ i 48.3 million for the years ended 2019, 2018 and 2017, respectively.

In December 2019, the Company recorded charges of $ i 32.3 million for impairment of property, plant and equipment in the Trade segment related to its frac sand assets. The Company also recorded a $ i 3.7 million impairment of property, plant, and equipment in the Trade segment related to its Tennessee grain assets, of which $ i 3.1 million was recorded in the second quarter.

In June 2018, the Company recorded charges totaling $ i 1.6 million for impairment of property, plant and equipment in the Trade segment related to assets that were reclassified as assets held for sale at June 30, 2018 and were sold in the third quarter.

In December 2017, the Company recorded charges totaling $ i 10.9 million for impairment of property, plant and equipment in the Trade segment, of which $ i 5.6 million relates to assets that were deemed held and used and $ i 5.3 million related to assets that had been reclassified as held for sale at December 31, 2017. These assets were then sold during 2018.

Rail Group Assets

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



	December 31,
(in thousands)	2019		2018
Rail Group assets leased to others	$	i 723,004	$	i 640,349
Less: accumulated depreciation	i 138,706		i 118,564
	$	i 584,298	$	i 521,785

Depreciation expense on Rail Group assets leased to others amounted to $ i 28.5 million, $ i 24.7 million and $ i 20.0 million for the years ended 2019, 2018 and 2017, respectively.

In June 2018, the Company recorded charges of $ i 4.7 million for impairment of Rail Group assets leased to others that had been reclassified as assets held for sale at June 30, 2018. These assets were sold during the second half of 2018.

4. i Debt

The Company’s short-term and long-term debt at December 31, 2019 and 2018 consisted of the following:



	December 31,
(in thousands)	2019		2018
Short-term Debt – Non-Recourse	$	i 54,029	$	i —
Short-term Debt – Recourse	i 93,002		i 205,000
Total Short-term Debt	i 147,031		i 205,000

Current Maturities of Long-term Debt – Non-Recourse	i 9,250		i 4,842
Current Maturities of Long-term Debt – Recourse	i 36,013		i 16,747
Finance lease liability	i 17,636		i —
Total Current Maturities of Long-term Debt	i 62,899		i 21,589

Long-term Debt, Less: Current Maturities – Non-Recourse	i 329,891		i 146,353
Long-term Debt, Less: Current Maturities – Recourse	i 664,856		i 349,834
Finance lease liability	i 21,501		i —
Total Long-term Debt, Less: Current Maturities	$	i 1,016,248	$	i 496,187

On January 2, 2019, in conjunction with the LTG acquisition, the Company assumed a revolving line of credit and a term loan with a syndicate of banks, which are non-recourse to the Company. The credit agreement provides the Company with a maximum availability of $ i 184.8 million and had $ i 130.8 million available for borrowing on this line of credit as of December 31, 2019. Any borrowings under the line of credit bear interest at variable rates, which are based on LIBOR or Bankers’ Acceptances plus an applicable spread. The maturity date for the revolving line of credit is June 26, 2023. The term note assumed in conjunction with the LTG acquisition was non-recourse to the Company with a syndicate of banks and had a balance of $ i 15.5 million at December 31, 2019. The interest rate for the term loan was i 4.51% as of December 31, 2019 and is based on LIBOR plus an applicable spread. Payments on the term loans are made on a quarterly basis.

On January 11, 2019, the Company entered into a 5-year recourse term loan in the amount of $ i 250 million and a 7-year recourse term loan of $ i 250 million. A portion of the term loans were used to pay down debt assumed in the LTG acquisition. Interest rates are based on LIBOR plus an applicable spread. At December 31, 2019, the interest rates for the 5-year and 7-year term loan were i 3.13% and i 3.38%, respectively. Payments on the term loans are made on a quarterly basis.

On October 1, 2019, in conjunction with the TAMH Merger Agreement, TAMH, a consolidated subsidiary of the Company, entered into a non-recourse Credit Agreement that included a $ i 70 million term note and a $ i 130 million revolving credit facility. Borrowings under the Credit Agreement bear interest at variable interest rates, which are based on LIBOR plus an applicable spread. Payments on the term loan will be made on a quarterly basis. As of December 31, 2019, no amounts were drawn on either the term loan or revolving credit facility.

Effective November 14, 2019, the Company entered into a 15-year loan agreement in the amount of $ i 105 million, of which $ i 73 million of the proceeds were used to extinguish existing long-term debt. The remainder of the proceeds were used to pay down a portion of outstanding line of credit borrowings. The agreement was secured by first mortgages on certain real and personal property held by the Company. Borrowings under the agreement bear a fixed interest rate of i 4.50% and payments of principal and interest will be made on a quarterly basis.

The Company was in compliance with all financial covenants at and during the years ended December 31, 2019 and 2018.

At December 31, 2019, the Company had short-term lines of credit capacity totaling $ i 1,507.8 million, of which $ i 1,281.4 million was unused. The weighted average interest rates on short-term borrowings outstanding at December 31, 2019 and 2018, were i 3.24% and i 3.32%, respectively.

Long-Term Debt

Recourse Long-Term Debt



	December 31,
(in thousands, except percentages)	2019		2018
Note payable, variable rate (3.38% at December 31, 2019), payable in increasing amounts plus interest, due 2026	$	i 237,500	$	i —
Note payable, variable rate (3.13% at December 31, 2019), payable in increasing amounts plus interest, due 2024	i 157,500		i —
Note payable, 4.50%, payable at maturity, due 2034 (a)	i 105,000		i —
Note payable, 4.07%, payable at maturity, due 2021	i 26,000		i 26,000
Note payable, 4.85%, payable at maturity, due 2026	i 25,000		i 25,000
Note payable, 4.55%, payable at maturity, due 2023	i 24,000		i 24,000
Note payable, 3.33%, payable in increasing amounts plus interest, due 2025 (a)	i 23,780		i 24,888
Note payable, 3.29%, payable in increasing amounts plus interest, due 2022 (a)	i 17,497		i 18,918
Note payable, 4.50%, payable at maturity, due 2030	i 16,000		i 16,000
Note payable, 5.00%, payable at maturity, due 2040	i 14,000		i 14,000
Note payable, variable rate (3.43% at December 31, 2019), payable quarterly, due 2024 (a)	i 12,250		i 13,250
Line of credit, variable rate, paid 2019	i —		i 50,000
Note payable, 4.92%, payable in increasing amounts, plus interest, paid 2019 (a)	i —		i 16,227
Note payable, 4.23%, payable in increasing amounts plus interest, paid 2019 (a)	i —		i 9,948
Note payable, 4.76%, payable in increasing amounts plus interest, paid 2019 (a)	i —		i 44,330
Note payable, variable rate, payable in increasing amounts plus interest, paid 2019 (a)	i —		i 16,452
Note payable, variable rate, payable in increasing amounts plus interest, paid 2019 (a)	i —		i 8,417
Note payable, 4.76%, payable in increasing amounts plus interest, paid 2019 (a)	i —		i 8,288

Industrial development revenue bonds:
Variable rate (3.41% at December 31, 2019), payable at maturity, due 2036	i 21,000		i 21,000
Variable rate (3.44% at December 31, 2019), payable at maturity, due 2025 (a)	i 3,100		i 3,100
Variable rate, paid 2019 (a)	i —		i 4,650
Debenture bonds, 2.65% to 5.00%, payable in increasing amounts plus interest, due 2020 through 2031	i 26,075		i 27,323
Finance lease obligations, due serially to 2030 (a)	i 38,482		i —
	i 747,184		i 371,791
Less: current maturities	i 53,353		i 16,747
Less: unamortized prepaid debt issuance costs	i 7,833		i 5,210
	$	i 685,998	$	i 349,834

(a) Debt is collateralized by first mortgages on certain facilities and related equipment or other assets with a book value $ i 435.8 million.

The aggregate annual maturities of recourse, long-term debt are as follows: 2020 -- $ i 53.4 million; 2021 -- $ i 66.6 million; 2022 -- $ i 49.9 million; 2023 -- $ i 58.6 million; 2024 -- $ i 135.4 million; and $ i 383.3 million thereafter.

Non-Recourse Long-Term Debt

The Company's non-recourse long-term debt consists of the following:



	December 31,
(in thousands)	2019		2018
Line of credit, 3.76%, payable at maturity, due 2021	$	i 180,000	$	i 118,000
Note Payable, variable rate (4.92% at December 31, 2019), payable at maturity, due 2026	i 66,094		i —
Industrial revenue bond, variable rate (3.44% at December 31, 2019), payable at maturity, due 2032 (a)	i 49,500		i —
Note payable, variable rate (4.51% at December 31, 2019), payable in increasing amounts plus interest, due 2023	i 15,465		i —
Non-recourse financing obligations, 3.60% to 4.94%, payable at maturity, due 2020 through 2026	i 28,855		i 34,019
Finance lease obligations, due serially to 2023	i 655		i —
	i 340,569		i 152,019
Less: current maturities	i 9,545		i 4,842
Less: unamortized prepaid debt issuance costs	i 774		i 824
	$	i 330,250	$	i 146,353

The aggregate annual maturities of non-recourse, long-term debt are as follows: 2020 - $ i 9.5 million; 2021 -- $ i 188.1 million; 2022 -- $ i 22.0 million; 2023 -- $ i 19.0 million; 2024 -- $ i 12.1 million; and $ i 89.9 million thereafter.

5. i Derivatives

Commodity Contracts

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

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

contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Consolidated Balance Sheets.

The following table presents at December 31, 2019 and 2018, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or noncurrent commodity derivative assets (or liabilities) on the Consolidated Balance Sheets:

December 31, 2019

December 31, 2018

(in thousands)

Net Derivative Asset Position

Net Derivative Liability Position

Net Derivative Asset Position

Net Derivative Liability Position

Collateral paid

i 56,005

i —

i 14,944

i —

Fair value of derivatives

( i 10,323

)

i —

i 22,285

i —

Balance at end of period

i 45,682

i —

i 37,229

i —

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

December 31, 2019

(in thousands)

Commodity Derivative Assets - Current

Commodity Derivative Assets - Noncurrent

Commodity Derivative Liabilities - Current

Commodity Derivative Liabilities - Noncurrent

Total

Commodity derivative assets

i 92,429

i 1,045

i 7,439

i 18

i 100,931

Commodity derivative liabilities

( i 40,571

)

( i 96

)

( i 54,381

)

( i 523

)

( i 95,571

)

Cash collateral

i 56,005

i —

i 56,005

Balance sheet line item totals

i 107,863

i 949

( i 46,942

)

( i 505

)

i 61,365

December 31, 2018

(in thousands)

Commodity Derivative Assets - Current

Commodity Derivative Assets - Noncurrent

Commodity Derivative Liabilities - Current

Commodity Derivative Liabilities - Noncurrent

Total

Commodity derivative assets

i 43,463

i 484

i 706

i 5

i 44,658

Commodity derivative liabilities

( i 6,986

)

( i 4

)

( i 33,353

)

( i 894

)

( i 41,237

)

Cash collateral

i 14,944

i —

i 14,944

Balance sheet line item totals

i 51,421

i 480

( i 32,647

)

( i 889

)

i 18,365

The net pre-tax gains on commodity derivatives not designated as hedging instruments included in the Company’s Consolidated Statements of Operations and the line items in which they are located for the years ended December 31, 2019, 2018, and 2017 are as follows:



	Year Ended December 31,
(in thousands)	2019		2018		2017
Gains (Losses) on commodity derivatives included in Cost of sales and merchandising revenues	$	i 1,939	$	i 4,236	$	i 5,417

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



	December 31, 2019
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	i 552,359	i —	i —	i —
Soybeans	i 34,912	i —	i —	i —
Wheat	i 100,996	i —	i —	i —
Oats	i 24,700	i —	i —	i —
Ethanol	i —	i 116,448	i —	i —
Corn oil	i —	i —	i 14,568	i —
Other	i 11,363	i 4,000	i 305	i 2,263
Subtotal	i 724,330	i 120,448	i 14,873	i 2,263
Exchange traded:
Corn	i 221,740	i —	i —	i —
Soybeans	i 39,145	i —	i —	i —
Wheat	i 68,171	i —	i —	i —
Oats	i 2,090	i —	i —	i —
Ethanol	i —	i 175,353	i —	i —
Propane	i —	i 5,166	i —	i —
Other	i —	i 15	i —	i 232
Subtotal	i 331,146	i 180,534	i —	i 232
Total	i 1,055,476	i 300,982	i 14,873	i 2,495



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

Interest Rate and Other Derivatives

The Company periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. While the Company considers all of its interest rate derivative positions to be effective economic hedges of specified risks, these interest rate contracts are recorded on the balance sheet in other current assets or liabilities (if short-term in nature) or in other assets or other long-term liabilities (if non-current in nature) and changes in fair value are recognized currently in earnings as a component of interest expense. The Company also has foreign currency derivatives which are considered effective economic hedges of specified economic risks.

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



	December 31,
(in thousands)	2019			2018
Derivatives not designated as hedging instruments
Interest rate contracts included in Other long-term assets (Other long-term liabilities)	$	( i 1,007	)	$	( i 353	)
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)	i 2,742			( i 1,122		)
Derivatives designated as hedging instruments
Interest rate contracts included in Other current assets (Accrued expenses and other current liabilities)	( i 3,118		)	i —
Interest rate contracts included in Other long-term assets (Other long-term liabilities)	$	( i 9,382	)	$	( i 168	)

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



	Year ended December 31,
(in thousands)	2019			2018
Derivatives not designated as hedging instruments
Interest rate derivative gains (losses) included in Interest income (expense)	$	( i 718	)	$	i 1,115
Foreign currency derivative gains (losses) included in Other income, net	( i 437		)	( i 1,548		)
Derivatives designated as hedging instruments
Interest rate derivative gains (losses) included in Other comprehensive income	( i 12,398		)	( i 168		)
Interest rate derivative gains (losses) included in Interest income (expense)	$	( i 761	)	$	i 158

The following table presents the open interest rate contracts at December 31, 2019:

Interest Rate Hedging Instrument

Year Entered

Year of Maturity

Initial Notional Amount

(in millions)

Hedged Item

Interest Rate

Long-term

Swap

2014

2023

i 23.0

Interest rate component of debt - not accounted for as a hedge

i 1.9%

Collar

2016

2021

i 40.0

Interest rate component of debt - not accounted for as a hedge

3.5% to 4.8%

Swap

2017

2022

i 20.0