The Andersons, Inc. — 2021 Form 10-K
Business context and reporting period. The company operates in agricultural commodity merchandising and logistics (Trade), ethanol and other renewables (Renewables), and agricultural and specialty plant nutrients (Plant Nutrient). This filing covers the fiscal year ended December 31, 2021; the company also reports quarterly results, including fourth-quarter 2021. Rail results are presented as discontinued operations following the sale of the Rail Leasing business and the plan to divest remaining Rail operations.
Financial performance and liquidity
- Revenue and profit: Sales and merchandising revenues were $12.61 billion, up from $8.06 billion in 2020. Gross profit rose to $592.7 million from $366.2 million. Income from continuing operations before tax was $160.8 million, compared with a $27.1 million loss in 2020. Net income attributable to The Andersons was $104.0 million, or diluted EPS of $3.07, versus $7.7 million and $0.23, respectively.
- Margins and segment results: Management cautions that commodity price changes can substantially increase both revenue and cost of sales, so revenue growth alone is not a reliable performance indicator. Trade benefited from commodity-market dislocations and stronger elevation margins. Renewables recovered from pandemic-affected results, supported by improved crush and co-product margins. Plant Nutrient had a record year, benefiting from higher demand, strong grower income, and well-positioned inventory.
- Fourth quarter: Revenue was $3.78 billion and continuing-operations pretax income was $76.6 million. Net income attributable to the company was $29.6 million; diluted continuing-operations EPS was $0.95.
- Cash flow: Operating activities used $51.1 million, versus $74.4 million used in 2020, as stronger operating results were offset by working-capital investment. Investing activities provided $487.2 million, principally reflecting $543.1 million of proceeds from the Rail Leasing sale. Capital expenditures were $71.8 million.
- Liquidity and debt: Working capital from continuing operations was $900.9 million, up $423.5 million year over year; cash was $216.4 million. Short-term debt was $501.8 million and long-term debt, including current maturities, was $632.7 million. The company reported $1.02 billion available under its borrowing arrangements and compliance with debt covenants at year-end. Management believes liquidity will be adequate for operations, capital spending, and dividends in the foreseeable future.
- Other measures: The 2021 income tax expense was $29.2 million, an 18.2% effective rate. Dividends paid were $23.7 million; the quarterly dividend was raised to $0.18 per share for January 2022.
Material changes versus 2020
- Results improved sharply across all three continuing segments. The company attributed much of the higher reported revenue and cost of sales to increased commodity prices, while improved gross profit reflected stronger merchandising, ethanol co-product, and fertilizer performance.
- Cash and working capital increased, but inventories, receivables, and payables also rose substantially with commodity prices and seasonal activity. Operating cash flow remained negative.
- The Rail Leasing business was sold for approximately $543.1 million in cash proceeds; the company announced plans to divest the remaining Rail businesses. Rail operations are classified as discontinued operations.
- The company recorded $8.3 million of Trade asset impairments, including $7.7 million related to frac sand assets and $0.6 million for a shuttered Texas facility. Inventory valuation charges fell to $3.4 million from $11.7 million in 2020.
Outlook, risks, and unusual items
- Management described Trade as positioned to capture continued opportunities and expected strong fundamentals; Renewables anticipated strong trading and co-product opportunities in 2022, while noting high corn prices could pressure crush margins; Plant Nutrient expected continued opportunities from high commodity prices, farmer income, and inventory positioning.
- Planned 2022 capital expenditures are approximately $100–$125 million, about 60% for maintenance.
- Key risks include commodity price and basis volatility, margin calls and liquidity needs, weather and climate impacts, ethanol demand and input costs, fertilizer supply and prices, COVID-19-related disruption, regulation, counterparty performance, competition, cyber and operational safety risks, and potential environmental or legal liabilities.
- ELEMENT faced a potential debt-service covenant violation. Before filing, its lender retrospectively waived the 2021 violation and amended the covenant, setting a 1.0 target for 2022; the related debt was classified as noncurrent at year-end.
- Goodwill impairment testing found no impairment, but the GSM and Food and Specialty Ingredients reporting units’ estimated values exceeded carrying values by 26% and 24%, respectively. The filing identifies these units as more exposed to potential future impairment if forecasts weaken or discount rates rise.
- The company disclosed a trading-related litigation claim involving a previously unconsolidated subsidiary. It believes it has defenses and that any excess loss, net of acquisition-related indemnity, would not be material, but notes the outcome is uncertain. The financial statement audit opinion was unqualified, and the auditor and management reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether improved segment earnings persist if commodity prices, basis conditions, ethanol margins, and fertilizer pricing normalize.
- How working-capital requirements, seasonal borrowing, and potential commodity margin calls affect operating cash flow and available liquidity.
- Progress and proceeds from planned divestitures of remaining Rail operations, and the use of Rail Leasing sale proceeds to reduce debt.
- ELEMENT’s compliance with amended covenants in 2022 and the company’s variable-rate borrowing exposure.
- Developments in the disclosed litigation claim and the assumptions supporting goodwill valuations, particularly for GSM and FSI.