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Revenue | 6 Months Ended
--- | ---
Jun. 30, 2018
Revenue from Contract with Customer [Abstract] |
Revenue | Revenue 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) | Three months ended June 30, 2018 |  | Six months ended June 30, 2018
Revenues under ASC 606 | $ | 356,883 |  |  | $ | 550,533 |
Revenues under ASC 840 | 26,228 |  |  | 52,257 |
Revenues under ASC 815 | 528,291 |  |  | 944,351 |
Total Revenues | $ | 911,402 |  |  | $ | 1,547,141 |
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:
| Three months ended June 30, 2018
(in thousands) | Grain |  | Ethanol |  | Plant Nutrient |  | Rail |  | Total
Specialty nutrients | $ | — |  |  | $ | — |  |  | $ | 94,281 |  |  | $ | — |  |  | $ | 94,281 |
Primary nutrients | — |  |  | — |  |  | 200,288 |  |  | — |  |  | 200,288 |
Service | 3,381 |  |  | 2,760 |  |  | 2,412 |  |  | 9,308 |  |  | 17,861 |
Co-products | — |  |  | 32,462 |  |  | — |  |  | — |  |  | 32,462 |
Other | 292 |  |  | — |  |  | 6,124 |  |  | 5,575 |  |  | 11,991 |
Total | $ | 3,673 |  |  | $ | 35,222 |  |  | $ | 303,105 |  |  | $ | 14,883 |  |  | $ | 356,883 |
Approximately 5% of revenues accounted for under ASC 606 are recorded over time which primarily relates to service revenues noted above.
| Six months ended June 30, 2018
(in thousands) | Grain |  | Ethanol |  | Plant Nutrient |  | Rail |  | Total
Specialty nutrients | $ | — |  |  | $ | — |  |  | $ | 169,359 |  |  | $ | — |  |  | $ | 169,359 |
Primary nutrients | — |  |  | — |  |  | 253,507 |  |  | — |  |  | 253,507 |
Service | 7,799 |  |  | 5,305 |  |  | 2,621 |  |  | 17,425 |  |  | 33,150 |
Co-products | — |  |  | 59,108 |  |  | — |  |  | — |  |  | 59,108 |
Other | 502 |  |  | — |  |  | 13,235 |  |  | 21,672 |  |  | 35,409 |
Total | $ | 8,301 |  |  | $ | 64,413 |  |  | $ | 438,722 |  |  | $ | 39,097 |  |  | $ | 550,533 |
Approximately 6% 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 March 31, 2018 | 67,715 |
Balance at June 30, 2018 | 10,047 |
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. Due to seasonality of this business, contract liabilities were built up in the first quarter. In the second quarter, the change in liabilities is due to revenue recognized in the current period relating to the liability. Impact of New Revenue Guidance on Financial Statement Line Items The following table compares the reported condensed consolidated balance sheet, as of June 30, 2018, to the pro forma amounts had the previous guidance been in effect:
| Balance Sheet
| June 30, 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 | $ | 58,611 |  |  | $ | — |  |  | $ | 58,611 |
Accounts receivable, net | 218,476 |  |  | — |  |  | 218,476 |
Inventories | 495,611 |  |  | 158 |  |  | 495,769 |
Commodity derivative assets - current | 54,259 |  |  | — |  |  | 54,259 |
Other current assets | 52,464 |  |  | (202 | ) |  | 52,262 |
Other noncurrent assets | 371,368 |  |  | — |  |  | 371,368 |
Rail Group assets leased to others, net | 458,424 |  |  | (24,131 | ) |  | 434,293 |
Property, plant and equipment, net | 408,575 |  |  | — |  |  | 408,575 |
Total assets | 2,117,788 |  |  | (24,175 | ) |  | 2,093,613 |
Short-term debt and current maturities of long-term debt | 198,700 |  |  | (2,922 | ) |  | 195,778 |
Trade and other payables and accrued expenses and other current liabilities | 356,733 |  |  | — |  |  | 356,733 |
Commodity derivative liabilities - current | 85,160 |  |  | — |  |  | 85,160 |
Customer prepayments and deferred revenue | 16,103 |  |  | — |  |  | 16,103 |
Commodity derivative liabilities - noncurrent and Other long-term liabilities | 33,527 |  |  | — |  |  | 33,527 |
Employee benefit plan obligations | 26,131 |  |  | — |  |  | 26,131 |
Long-term debt, less current maturities | 435,580 |  |  | (32,597 | ) |  | 402,983 |
Deferred income taxes | 118,864 |  |  | 2,869 |  |  | 121,733 |
Total liabilities | 1,270,798 |  |  | (32,650 | ) |  | 1,238,148 |
Retained earnings | 635,438 |  |  | 8,475 |  |  | 643,913 |
Common shares, additional paid-in-capital, treasury shares, accumulated other comprehensive loss and noncontrolling interests | 211,552 |  |  | — |  |  | 211,552 |
Total equity | 846,990 |  |  | 8,475 |  |  | 855,465 |
Total liabilities and equity | 2,117,788 |  |  | (24,175 | ) |  | 2,093,613 |
Total reported assets were $24.2 million greater than on the pro forma balance sheet, which assumes the previous guidance remained in effect as of June 30, 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 $32.7 million greater than on the pro forma balance sheet, which assumes the previous guidance remained in effect as of June 30, 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 three and six months ended June 30, 2018, to the pro forma amounts had the previous guidance been in effect:
| Statement of Operations
| Three months ended June 30, 2018
(in thousands) | As Reported |  | ASC 606 Impact |  | Pro forma as if the previous accounting guidance was in effect
Sales and merchandising revenues | $ | 911,402 |  |  | $ | 185,276 |  |  | $ | 1,096,678 |
Cost of sales and merchandising revenues | 820,928 |  |  | 185,765 |  |  | 1,006,693 |
Gross profit | 90,474 |  |  | (489 | ) |  | 89,985 |
Operating, administrative and general expenses | 59,853 |  |  | — |  |  | 59,853 |
Asset impairment | 6,272 |  |  | — |  |  | 6,272 |
Interest expense | 7,825 |  |  | (395 | ) |  | 7,430 |
Other income: |  |  |  |  |
Equity in earnings of affiliates, net | 9,803 |  |  | — |  |  | 9,803 |
Other income, net | 2,828 |  |  | — |  |  | 2,828 |
Income (loss) before income taxes | 29,155 |  |  | (94 | ) |  | 29,061 |
Income tax provision | 7,742 |  |  | (16 | ) |  | 7,726 |
Net income (loss) | 21,413 |  |  | (78 | ) |  | 21,335 |
Net income attributable to the noncontrolling interests | (116 | ) |  | — |  |  | (116 | )
Net income (loss) attributable to The Andersons, Inc. | $ | 21,529 |  |  | $ | (78 | ) |  | $ | 21,451 |
| Statement of Operations
| Six months ended June 30, 2018
(in thousands) | As Reported |  | ASC 606 Impact |  | Pro forma as if the previous accounting guidance was in effect
Sales and merchandising revenues | $ | 1,547,141 |  |  | $ | 349,465 |  |  | $ | 1,896,606 |
Cost of sales and merchandising revenues | 1,392,962 |  |  | 350,415 |  |  | 1,743,377 |
Gross profit | 154,179 |  |  | (950 | ) |  | 153,229 |
Operating, administrative and general expenses | 124,110 |  |  | — |  |  | 124,110 |
Asset impairment | 6,272 |  |  | — |  |  | 6,272 |
Interest expense | 14,824 |  |  | (798 | ) |  | 14,026 |
Other income: |  |  |  |  |
Equity in earnings of affiliates, net | 13,376 |  |  | — |  |  | 13,376 |
Other income, net | 4,514 |  |  | — |  |  | 4,514 |
Income (loss) before income taxes | 26,863 |  |  | (152 | ) |  | 26,711 |
Income tax provision | 7,432 |  |  | (38 | ) |  | 7,394 |
Net income (loss) | 19,431 |  |  | (114 | ) |  | 19,317 |
Net income attributable to the noncontrolling interests | (398 | ) |  | — |  |  | (398 | )
Net income (loss) attributable to The Andersons, Inc. | $ | 19,829 |  |  | $ | (114 | ) |  | $ | 19,715 |
The following summarizes the significant changes on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 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, we are 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 now being recorded on a net basis, revenues and related cost of sales would have been $183.1 million and $345.0 million higher under the previous guidance for the three and six months ended June 30, 2018, respectively.
• | 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 three and six months ended June 30, 2018. The adoption of ASC 606 had an immaterial 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.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 + Details
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