Revenue

12 Months Ended

Dec. 31, 2018

Revenue from Contract with Customer [Abstract]

Many of the Company’s revenues are generated from contracts that are outside the scope of ASC 606 and thus are accounted for under other accounting standards. Specifically, many of the Company's Grain and Ethanol sales contracts are derivatives under ASC 815, Derivatives and Hedging and the Rail Group's leasing revenue is accounted for under ASC 840, Leases. The breakdown of revenues between ASC 606 and other standards is as follows:



(in thousands)	For the Year ended December 31, 2018
Revenues under ASC 606	$	898,885
Revenues under ASC 840	105,631
Revenues under ASC 815	2,040,866
Total Revenues	$	3,045,382

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

Disaggregation of revenue

The following tables disaggregate revenues under ASC 606 by major product/service line:



	Twelve months ended December 31, 2018
(in thousands)	Grain		Ethanol		Plant Nutrient		Rail		Total
Specialty nutrients	$	—	$	—	$	260,821	$	—	$	260,821
Primary nutrients	—		—		399,566		—		399,566
Services	14,666		10,786		4,411		35,179		65,042
Co-products	—		114,489		—		—		114,489
Other	1,035		—		25,738		32,194		58,967
Total	$	15,701	$	125,275	$	690,536	$	67,373	$	898,885

For the year ended December 31, 2018, approximately 7% of revenues accounted for under ASC 606 are recorded over time which primarily relates to service revenues noted above.

Specialty and primary nutrients

The Company sells several different types of specialty nutrient products, including: low-salt liquid starter fertilizers, micro-nutrients and other specialty lawn products. These products can be sold through the wholesale distribution channels as well as directly to end users at the farm center locations. Similarly, the Company sells several different types of primary nutrient products, including nitrogen, phosphorus and potassium. These products may be purchased and re-sold as is or sold as finished goods resulting from a blending and manufacturing process. The contracts associated with specialty and primary nutrients generally have just a single performance obligation, as the Company has elected the accounting policy to consider shipping and handling costs as fulfillment costs. Revenue is recognized when control of the product has passed to the customer. Payment terms generally range from 0 - 30 days.

Service

Service revenues primarily relate to the railcar repair business. The Company owns several railcar repair shops which repair railcars through specific contracts with customers or by operating as an agent for a particular railroad to repair cars that are on its rail line per Association of American Railroads (“AAR”) standards. These contracts contain a single performance obligation which is to complete the requested and/or required repairs on the railcars. As the customer simultaneously receives and consumes the benefit of the repair work we perform, revenue for these contracts is recognized over time. The Company uses an input-based measure of progress using costs incurred to total expected costs as that is the measure that most faithfully depicts our progress towards satisfying our performance obligation. Upon completion of the work, the invoice is sent to the customer, with payment terms that generally range from 0 - 30 days.

Co-products

In addition to the ethanol sales contracts that are considered derivative instruments, the Ethanol Group sells several other co-products that remain subject to ASC 606, including E-85, DDGs, syrups and renewable identification numbers (“RINs”). RINs are credits for compliance with the Environmental Protection Agency's Renewable Fuel Standard program and are created by renewable fuel producers. Contracts for these co-products generally have a single performance obligation, as the Company has elected the accounting policy to consider shipping and handling costs as fulfillment costs. Revenue is recognized when control of the product has passed to the customer which follows shipping terms on the contract. Payment terms generally range from 5 - 15 days.

Contract balances

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



(in thousands)	Contract liabilities
Balance at January 1, 2018	$	25,520
Balance at December 31, 2018	28,858

The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. Contract liabilities relate to the Plant Nutrient business for payments received in advance of fulfilling our performance obligations under our customer contracts. Contract liabilities are built up at year-end and through the first quarter as a result of payments in advance of fulfilling our performance obligations under out customer contracts in preparation for the spring planing season. The contract liabilities are then relieved as obligations are met through the year and begin to build in preparation for a new season as we approach year-end.

Impact of New Revenue Guidance on Financial Statement Line Items

The following table compares the balance sheet, as of December 31, 2018, to the pro forma amounts had the previous guidance been in effect:



	Balance Sheet
	December 31, 2018
(in thousands)	As Reported		ASC 606 Impact			Pro forma as if the previous accounting guidance was in effect
Cash and cash equivalents and restricted cash	$	22,593	$	—		$	22,593
Accounts receivable, net	207,285		—			207,285
Inventories	690,804		74			690,878
Commodity derivative assets - current	51,421		—			51,421
Other current assets	51,095		(114		)	50,981
Other noncurrent assets	370,309		—			370,309
Rail Group assets leased to others, net	521,785		(22,709		)	499,076
Property, plant and equipment, net	476,711		—			476,711
Total assets	2,392,003		(22,749		)	2,369,254
Short-term debt and current maturities of long-term debt	226,589		(4,842		)	221,747
Trade and other payables and accrued expenses and other current liabilities	541,581		—			541,581
Commodity derivative liabilities - current	32,647		—			32,647
Customer prepayments and deferred revenue	32,533		—			32,533
Commodity derivative liabilities - noncurrent and Other long-term liabilities	33,073		—			33,073
Employee benefit plan obligations	22,542		—			22,542
Long-term debt, less current maturities	496,187		(29,177		)	467,010
Deferred income taxes	130,087		3,492			133,579
Total liabilities	1,515,239		(30,527		)	1,484,712
Retained earnings	647,517		7,778			655,295
Common shares, additional paid-in-capital, treasury shares, accumulated other comprehensive loss and noncontrolling interests	229,247		—			229,247
Total equity	876,764		7,778			884,542
Total liabilities and equity	$	2,392,003	$	(22,749	)	$	2,369,254

Total reported assets were $22.7 million greater than on the pro forma balance sheet, which assumes the previous guidance remained in effect as of December 31, 2018. This was largely due to the Rail Group assets that were recorded on the balance sheet on January 1, 2018 as part of the cumulative catch-up adjustment upon the adoption of ASC 606.

Total reported liabilities were $30.5 million greater than on the pro forma balance sheet, which assumes the previous guidance remained in effect as of December 31, 2018. This was largely due to the financing obligation and deferred taxes related to the Rail Group assets that were recorded on the balance sheet on January 1, 2018 as part of the cumulative catch-up adjustment upon the adoption of ASC 606.

The following table compares the reported condensed statement of operations for the year ended December 31, 2018, to the pro forma amounts had the previous guidance been in effect:



	Statement of Operations
	December 31, 2018
(in thousands)	As Reported			ASC 606 Impact			Pro forma as if the previous accounting guidance was in effect
Sales and merchandising revenues	$	3,045,382		$	701,437		$	3,746,819
Cost of sales and merchandising revenues	2,743,377			703,358			3,446,735
Gross profit	302,005			(1,921		)	$	300,084
Operating, administrative and general expenses	257,872			—			$	257,872
Asset impairment	6,272			—			$	6,272
Interest expense	27,848			(1,563		)	$	26,285
Other income:
Equity in earnings of affiliates, net	27,141			—			$	27,141
Other income, net	16,002			—			$	16,002
Income (loss) before income taxes	53,156			(358		)	$	52,798
Income tax provision	11,931			(89		)	$	11,842
Net income (loss)	41,225			(269		)	$	40,956
Net income attributable to the noncontrolling interests	(259		)	—			$	(259	)
Net income (loss) attributable to The Andersons, Inc.	$	41,484		$	(269	)	$	41,215

The following summarizes the significant changes on the Company’s condensed consolidated statement of operations for the year ended December 31, 2018 due to the adoption of ASC 606 on January 1, 2018 compared to the results that would have been reported if the Company had continued to recognize revenues under ASC 605:

•

While grain origination agreements, and their related sales contracts, will be accounted for under ASC 815, the Company is still required to evaluate the principal versus agent guidance in ASC 606 to determine whether realized gains or losses should be presented on a gross or net basis in the consolidated statements of operations upon physical settlement. The Company has determined that it is the agent in certain origination arrangements within our Grain Group and therefore realized gains or losses will be presented under ASC 606. Since these transactions are now being recorded on a net basis, revenues and related cost of sales would have been $688.3 million higher under the previous guidance for the twelve months ended December 31, 2018.

•

ASC 606 requires certain Rail Group assets and related financing obligations to be recorded on the balance sheet as these transactions no longer qualify as sales as a result of the existence of repurchase options within the sales contracts. The result of this change primarily impacts geography within the income statement, as lease expense to the financial institution is replaced with a combination of depreciation and interest expense.

The net impact of accounting for revenue under the new guidance had an immaterial impact on net income (loss) and no impact on the Company's earnings per common share for the year ended December 31, 2018.

The adoption of ASC 606 had an immaterial impact on the Company’s cash flows from operations. The aforementioned impacts resulted in offsetting shifts in cash flows throughout net income and various changes in working capital balances.

Transaction Price Allocated to Future Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied at period end. The guidance provides certain practical expedients that limit this requirement. The Company has various contracts that meet the following practical expedients provided by ASC 606:


•	The performance obligation is part of a contract that has an original expected duration of one year or less.


•	The variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met.

Contract costs

The company has elected to apply the practical expedient and accordingly recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in Operating, administrative and general expenses.

Significant judgments

In making its determination of standalone selling price, the Company maximizes its use of observable inputs. Standalone selling price, once established, is then used to allocate total consideration proportionally to the various performance obligations, if applicable, within a contract.

To estimate variable consideration, the Company applies both the “expected value” method and “most likely amount” method based on the form of variable consideration, according to which method would provide the best prediction. The expected value method involves a probability-weighted determination of the expected amount, whereas the most likely amount method identifies the single most likely outcome in a range of possible amounts. However, once a method has been applied to one form of variable consideration, it is applied consistently throughout the contract term.

The primary types of variable consideration present in the Company’s contracts are product returns, volume rebates and the CPI index. The overall impact of this variable consideration is not material.

Practical expedients

The Company has elected to apply the following practical expedients provided by ASC 606:


•	Future performance obligations - see discussion above.


•	Contract costs - see discussion above.


•	Shipping and handling activities - see discussion above.


•	Sales tax presentation - the Company has elected to exclude from the transaction price all sales taxes that are assessed by a governmental authority that are imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer.

•

Modified retrospective approach - see discussion in Note 1 regarding adoption elections.