MGP INGREDIENTS, INC. CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report on Form 10-Q contains forward looking statements as well as historical information. All statements, other than statements of historical facts, regarding the prospects of our industry and our prospects, plans, financial position, and strategic plan may constitute forward looking statements. In addition, forward looking statements are usually identified by or are associated with such words as "intend," "plan," "believe," "estimate," "expect," "anticipate," "hopeful," "should," "may," "will," "could," "encouraged," "opportunities," "potential," and/or the negatives or variations of these terms or similar terminology. Forward looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from those expressed or implied in the forward looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward looking statements is included in the section titled "Risk Factors" (Item 1A) of our Annual Report on Form 10-K for the year endedDecember 31, 2019 and Part II, Item 1A of this report Form 10Q. Forward looking statements are made as of the date of this report, and we undertake no obligation to update or revise publicly any forward looking statements, whether because of new information, future events or otherwise. OnMarch 11, 2020 , theWorld Health Organization classified the novel strain of coronavirus ("COVID-19") a global pandemic. The Company's business is part ofthe United States' critical infrastructure and thus is deemed to be an "essential business." As such, MGP is taking necessary and appropriate actions to protect its workforce as it continues its critical operations. MGP has created a COVID-19 cross functional team to implement a business continuity plan and address key aspects of COVID-19 as it affects its business, including enhanced workplace safety, supply chain monitoring, and other potential operational challenges the Company could face. We have continued to operate without any significant negative impacts; however this could be effected by voluntary or mandatory temporary closures of our facilities, interruptions into to our supply chain or additional efforts to protect the health and safety of our employees. As of the date of this report, the Company's operations, supply chain and customer demand have not been significantly affected by COVID-19; however, we are monitoring the situation closely. The Company has implemented social distancing at each of its facilities, provides health screenings and monitoring for employees, implemented work-from-home policies where the Company is able, and restricted travel across the organization. The Company has incurred incremental costs for hourly wage bonuses to the Company's production employees, supplies to implement health screenings, an extended sick leave policy and additional IT related expenses to enable employees to work-from-home. As ofJune 30, 2020 , such incremental costs have been immaterial to the Company's financial statements. The Company cannot reasonably estimate the length of time or severity of the pandemic and cannot estimate the impact this pandemic will have on our consolidated financial results for 2020. See Risk Factors for future discussion of the potential adverse impacts of the COVID-19 pandemic on our business. InMay 2020 , the Company was affected by a ransomware cyber-attack that temporarily disrupted production at its Atchison facilities. The Company's financial information was not affected and there is no evidence that any sensitive or confidential company, supplier, customer or employee data was improperly accessed or extracted from our network. The Company estimates that the ransomware attack adversely impacted gross profit by$1,728 , primarily as a result of the business interruption. The Company has insurance related to this event and is seeking to recover a portion, if not all, of any profit impact including the profit associated with any loss of revenue resulting from this event. Following the attack, MGP implemented a variety of measures to further enhance our cybersecurity protections and minimize the impact of any future attack.
OVERVIEW
MGP is a leading producer and supplier of premium distilled spirits and
specialty wheat protein and starch food ingredients. Distilled spirits include
premium bourbon and rye whiskeys and grain neutral spirits ("GNS"), including
vodka and gin. We are also a top producer of high quality industrial alcohol for
use in both food and non-food applications. Our protein and starch food
ingredients provide a host of functional, nutritional and sensory benefits for a
wide range of food products to serve the packaged goods industry. We have two
reportable segments: our Distillery Products segment and our Ingredient
Solutions segment.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and accompanying notes included in this Form
10-Q, as well as our audited consolidated financial statements and accompanying
notes and Management's Discussion and Analysis of Financial
18
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Condition and Results of Operations - General, set forth in our Annual Report on
Form 10-K for the year ended
RESULTS OF OPERATIONS
Consolidated results
The table below details the consolidated results for the quarters endedJune 30, 2020 and 2019: Quarter Ended June 30, 2020 2019 2020 v. 2019 Sales$ 92,560 $ 90,501 2.3 % Cost of sales 71,858 70,979 1.2 Gross profit 20,702 19,522 6.0 Gross margin % 22.4 % 21.6 % 0.8 pp(a) Selling, general, and administrative ("SG&A") expenses 9,364 8,648 8.3 Operating income 11,338 10,874 4.3 Operating margin % 12.2 % 12.0 % 0.2 pp Interest expense, net and other (298) (321) (7.2) Income before income taxes 11,040 10,553 4.6 Income tax expense 2,550 2,642 (3.5) Effective tax expense rate % 23.1 % 25.0 % (1.9) pp Net income$ 8,490 $ 7,911 7.3 % Net income margin % 9.2 % 8.7 % 0.5 pp
(a) Percentage points ("pp").
Sales - Sales for quarter endedJune 30, 2020 were$92,560 , an increase of 2.3 percent compared to the year-ago quarter, which was the result of increased sales in both the Distillery Products and Ingredient Solutions segments. Within the Distillery Products segment, sales were up 1.6 percent, primarily due to an increase in industrial alcohol and distillers feed and related co-products. Within the Ingredient Solutions segment, sales were up 5.4 percent, primarily due to increased sales of specialty wheat starches and proteins (see Segment Results). Gross profit - Gross profit for quarter endedJune 30, 2020 was$20,702 , an increase of 6.0 percent compared to the year-ago quarter. The increase was driven by an increase in gross profit in the Ingredient Solutions segment partially offset by a decrease in gross profit in the Distillery Products segment. In the Ingredient Solutions segment, gross profit increased by$1,681 , or 55.7 percent. In the Distillery Products segment, gross profit declined by$501 , or 3.0 percent. Additionally, gross profits for both segments were negatively impacted by increased production costs due to the shutdown of the Atchison facilities as a result of the cyber-attack (see Segment Results). SG&A expenses - SG&A expenses for quarter endedJune 30, 2020 were$9,364 , an increase of 8.3 percent compared to the year-ago quarter. The increase in SG&A was primarily due to higher personnel and incentive compensation costs, inclusive of certain incremental costs incurred relating to the transition at the CEO position. Operating income - Operating income for quarter endedJune 30, 2020 increased to$11,338 from$10,874 for quarter endedJune 30, 2019 , primarily due to an increase in gross profit in the Ingredient Solutions segment, partially offset by the increase in the previously described SG&A expenses and a decrease in gross profit in the Distillery Products segment. 19 -------------------------------------------------------------------------------- Operating income, quarter versus quarter Operating Income Change Operating income for quarter ended June 30, 2019 $
10,874
Increase in gross profit - Ingredient Solutions segment(a) 1,681 15.5 pp(b) Decrease in gross profit - Distillery Products segment(a) (501) (4.6) pp Increase in SG&A expenses (716) (6.6) pp Operating income for quarter ended June 30, 2020$ 11,338 4.3 % (a) See segment discussion. (b) Percentage points ("pp"). Income tax expense - Income tax expense for quarter endedJune 30, 2020 was$2,550 , for an effective tax rate of 23.1 percent. Income tax expense for the quarter endedJune 30, 2019 , was$2,642 , for an effective tax rate of 25.0 percent. The decrease, quarter versus quarter, was primarily due to the impact of certain compensation limits applicable to public companies in the prior year.
Earnings per share ("EPS") - EPS was
Change in basic and diluted EPS, quarter versus quarter Basic and Diluted EPS
Change
Basic and diluted EPS for quarter ended June 30, 2019 $ 0.46
Increase in operations(a) 0.02 4.3 pp(b)
Tax: Change in income tax 0.01 2.2 pp
Decrease in weighted average shares outstanding 0.01 2.2 pp
Basic and diluted EPS for quarter ended June 30, 2020 $ 0.50 8.7 %
(a) Item is net of tax based on the effective tax rate for the base year (2019). (b) Percentage points ("pp").
The table below details the consolidated results for the year to date endedJune 30, 2020 and 2019: Year to Date Ended June 30, 2020 2019 2020 v. 2019 Sales$ 191,642 $ 179,597 6.7 % Cost of sales 147,729 143,415 3.0 Gross profit 43,913 36,182 21.4 Gross margin % 22.9 % 20.1 % 2.8 pp(a) SG&A expenses 18,867 16,795 12.3 Operating income 25,046 19,387 29.2 Operating margin % 13.1 % 10.8 % 2.3 pp Interest expense, net (940) (573) 64.0 Income before income taxes 24,106 18,814 28.1 Income tax expense 5,774 1,183 388.1 Effective tax expense rate % 24.0 % 6.3 % 17.7 pp Net income$ 18,332 $ 17,631 4.0 % Net income margin % 9.6 % 9.8 % (0.2) pp
(a) Percentage points ("pp").
Sales - Sales for year to date endedJune 30, 2020 , were$191,642 , an increase of 6.7 percent compared to the year-ago period, which was the result of increased sales in both the Distillery Products and Ingredient Solutions segments. Within the Distillery Products segment, sales were up 4.4 percent, primarily due to an increase in the sales of industrial alcohol, brown goods within premium beverage alcohol and warehouse services. Within the Ingredient Solutions segment, sales were up 17.6 percent, primarily due to increased sales of specialty wheat starches and proteins (see Segment Results). 20 -------------------------------------------------------------------------------- Gross profit - Gross profit for year to date endedJune 30, 2020 , was$43,913 , an increase of 21.4 percent compared to the year-ago period. The increase was driven by an increase in gross profit in both the Ingredient Solutions and Distillery Products segments. In the Ingredient Solutions segment, gross profit increased by$5,222 , or 117.6 percent. In the Distillery Products segment, gross profit increase by$2,509 , or 7.9 percent. Additionally, gross profits for both segments were negatively impacted by increased production costs due to the shutdown of the Atchison facilities as a result of the cyber-attack (see Segment Results). SG&A expenses - SG&A expenses for year to date endedJune 30, 2020 , were$18,867 , an increase of 12.3 percent compared to the year-ago period. The increase in SG&A was due to higher personnel and incentive compensation costs, inclusive of certain incremental costs incurred relating to the transition at the CEO position. Operating income - Operating income for year to date endedJune 30, 2020 , increased to$25,046 from$19,387 for year to date period endedJune 30, 2019 , primarily due to a increase in gross profit in both the Ingredient Solutions and Distillery Products segments. These increases were partially offset by an increase in above-described SG&A expenses. Operating income, year to date versus year to date Operating Income Change Operating income for year to date ended June 30, 2019$ 19,387 Increase in gross profit - Ingredient Solutions segment(a) 5,222 26.9 pp(b) Increase in gross profit - Distillery Products segment(a) 2,509 12.9 pp Increase in SG&A expenses (2,072) (10.6) pp
Operating income for year to date ended
29.2 %
(a) See segment discussion.
(b) Percentage points ("pp").
Income tax expense - Income tax expense for year to date ended June 30, 2020 ,
was $5,774 , for an effective tax rate of 24.0 percent. Income tax expense for
the year to date ended June 30, 2019 , was $1,183 , for an effective tax rate of
6.3 percent. The increase, year to date versus year to date, was primarily due
to the tax impacts of vested share-based awards.
Earnings per share - EPS was $1.07 for year to date ended June 30, 2020 ,
compared to $1.03 for year to date ended June 30, 2019 . EPS increased, year to
date versus year to date, primarily due to an increase in operations, offset by
a change in income tax expense as previously described.
Change in basic and diluted EPS, year to date versus Basic and Diluted
year to date EPS Change
Basic and diluted EPS for year to date ended
$ 1.03 Increase in operations(a) 0.38 36.9 pp(b) Decrease in weighted average shares outstanding 0.01 1.0 pp Change in interest expense, net(a) (0.03) (2.9) pp Tax: Change in share-based compensation (0.21) (20.4) pp
Tax: Change in effective tax rate (excluding above tax item)
(0.11) (10.7) pp
Basic and diluted EPS for year to date ended
$ 1.07 3.9 %
(a) Item is net of tax based on the effective tax rate for the base year (2019). (b) Percentage points ("pp").
21
--------------------------------------------------------------------------------SEGMENT RESULTS Distillery Products
The following tables show selected financial information for the Distillery
Products segment for the quarters ended
DISTILLERY PRODUCTS SALES
Quarter versus Quarter Sales Change
Quarter Ended June 30, Increase/(Decrease)
2020 2019 $ Change % Change
Brown goods $ 25,540 $ 27,621 $ (2,081) (7.5) %
White goods 15,042 14,691 351 2.4
Premium beverage alcohol 40,582 42,312 (1,730) (4.1)
Industrial alcohol 22,953 20,636 2,317 11.2
Food grade alcohol 63,535 62,948 587 0.9
Fuel grade alcohol 1,174 1,398 (224) (16.0)
Distillers feed and related
co-products 6,781 6,181 600 9.7
Warehouse services 3,699 3,496 203 5.8
Total Distillery Products $ 75,189 $ 74,023 $ 1,166 1.6 %
Change in Quarter versus Quarter Sales Attributed to:
Total (a) Volume(b) Net Price/Mix(c)
Premium beverage alcohol (4.1)% (5.9)% 1.8%
Other Financial Information
Quarter versus Quarter Increase /
Quarter Ended June 30, (Decrease)
2020 2019 $ Change % Change
Gross profit $ 16,002 $ 16,503 $ (501) (3.0) %
Gross margin % 21.3 % 22.3 % (1.0) pp(d)
(a) Total sales changes is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume.
(d) Percentage points ("pp").
Total sales of Distillery Products for the quarter ended June 30, 2020 ,
increased by $1,166 , or 1.6 percent, compared to the prior year quarter. Sales
of industrial alcohol, distillers feed and related co-products, white goods
within premium beverage alcohol, and warehouse services increased, while sales
of brown goods within premium beverage alcohol and fuel grade alcohol decreased
compared to the prior year quarter. The increase in sales of industrial alcohol
and white goods was driven by higher sales volume and favorable average selling
price. The increase in distillers feed and related co-products was driven by
favorable average selling prices, partially offset by lower sales volumes. The
decrease in sales of brown goods was driven by a decrease in sales volume,
partially offset by favorable average selling price and the decrease in fuel
grade alcohol was driven by decreases in average selling price. These increases
were also partially offset by lost sales volume due to the shutdown of the
Atchison facilities as a result of the cyber-attack.
Gross profit decreased quarter versus quarter by $501 , or 3.0 percent. Gross
margin for the quarter ended June 30, 2020 , decreased to 21.3 percent from 22.3
percent for the prior year quarter. The decrease in gross profit was primarily
due to higher input costs of white goods and industrial alcohol as well as
increased production costs due to the shutdown of the Atchison facilities as a
result of the cyber-attack. The decrease in gross profit was partially offset by
increased average selling price and sales volumes on industrial alcohol and
higher gross profit on distillers feed and related co-products.
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The following tables show selected financial information for the Distillery
Products segment for the year to date ended
DISTILLERY PRODUCTS SALES
Year to Date versus Year to Date
Year to Date Ended June 30, Sales Change Increase/(Decrease)
2020 2019 $ Change % Change
Brown Goods $ 54,610 $ 52,448 $ 2,162 4.1 %
White Goods 31,944 31,873 71 0.2
Premium beverage alcohol 86,554 84,321 2,233 2.6
Industrial alcohol 44,571 41,079 3,492 8.5
Food grade alcohol 131,125 125,400 5,725 4.6
Fuel grade alcohol 2,696 2,899 (203) (7.0)
Distillers feed and related
co-products 13,770 13,276 494 3.7
Warehouse services 7,600 7,025 575 8.2
Total Distillery Products $ 155,191 $ 148,600 $ 6,591 4.4 %
Change in Year to Date versus Year to Date Sales Attributed to:
Total(a) Volume(b) Net Price/Mix(c)
Premium beverage alcohol 2.6% 3.2% (0.6)%
Other Financial Information
Year to Date versus Year to Date Increase
Year to Date Ended June 30, / (Decrease)
2020 2019 $ Change % Change
Gross profit $ 34,251 $ 31,742 $ 2,509 7.9 %
Gross margin % 22.1 % 21.4 % 0.7 pp(d)
(a) Total sales changes is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume.
(d) Percentage points ("pp").
Total sales of Distillery Products for year to date ended June 30, 2020 ,
increased by $6,591 , or 4.4 percent compared to the year-ago period. Sales of
industrial alcohol, brown goods within premium beverage alcohol, warehouse
services, distillers feed and related co-products, and white goods within
premium beverage alcohol increased, while sales of fuel grade alcohol decreased
compared to the year-ago period. The increase in industrial alcohol is due to
increased sales volume and favorable average selling price. The increase in
brown goods is due to increased sales volume, partially offset by decrease in
average selling price. The increase in warehouse services was due to continued
increase in customer demand for storage and aging of barrels. These increases
were also partially offset by lost sales volume due to the shutdown of the
Atchison facilities as a result of the cyber-attack.
Gross profit for year to date ended June 30, 2020 increased by $2,509 , or 7.9
percent compared to the year-ago period. Gross margin for year to date ended
June 30, 2020 , increased to 22.1 percent from 21.4 percent for the prior year
period. The increase in gross profit was primarily due to higher sales volumes
on brown goods and favorable average selling price on industrial alcohol. The
increase in gross profit was partially offset by higher input costs on white
goods and industrial alcohol, lower average selling price on fuel grade alcohol,
and increased production costs due to the shutdown of the Atchison facilities as
a result of the cyber-attack.
23
--------------------------------------------------------------------------------Ingredient Solutions
The following tables show selected financial information for the Ingredient
Solutions segment for the quarter ended
INGREDIENT SOLUTIONS SALES
Quarter versus Quarter Sales
Quarter Ended June 30, Change Increase / (Decrease)
2020 2019 $ Change % Change
Specialty wheat starches $ 9,122 $ 7,210 $ 1,912 26.5 %
Specialty wheat proteins 6,013 5,276 737 14.0
Commodity wheat starches 1,774 3,013 (1,239) (41.1)
Commodity wheat proteins 462 979 (517) (52.8)
Total Ingredient Solutions $ 17,371 $ 16,478 $ 893 5.4 %
Change in Quarter versus Quarter Sales Attributed to:
Total(a) Volume(b) Net Price/Mix(c)
Total Ingredient Solutions 5.4% (6.8)% 12.2%
Other Financial Information
Quarter versus Quarter Increase /
Quarter Ended June 30, (Decrease)
2020 2019 $ Change % Change
Gross profit $ 4,700 $ 3,019 $ 1,681 55.7 %
Gross margin % 27.1 % 18.3 % 8.8 pp(d)
(a) Total sales changes is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume.
(d) Percentage points ("pp").
Total Ingredient Solutions sales for quarter ended June 30, 2020 , increased by
$893 , or 5.4 percent, compared to the prior year quarter. Quarter versus
quarter, this increase was driven by higher sales of specialty wheat starches
and proteins, partially offset by a decrease in sales of commodity wheat
starches and proteins. The increase in sales of specialty wheat starches and
proteins was driven by increased sales volume. These increases were slightly
offset by decreased sales volume of commodity wheat starches and proteins.
Additionally, these increases were partially offset by lost sales volume due to
the shutdown of the Atchison facilities as a result of the cyber-attack.
Gross profit increased quarter versus quarter by $1,681 , or 55.7 percent. Gross
margin for the quarter ended June 30, 2020 , increased to 27.1 percent from 18.3
percent for the prior year quarter. The increase in gross profit was primarily
driven by the increased sales volume of specialty wheat starches and proteins
and decreased sales volume of commodity wheat starches and proteins (mix). These
increases in gross profit were partially offset by increased production costs
due to the shutdown of the Atchison facilities as a result of the cyber-attack.
24
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The following tables show selected financial information for the Ingredient
Solutions segment for the year to date
INGREDIENT SOLUTIONS SALES
Year to Date versus Year to Date Sales
Year to Date Ended June 30, Change Increase/(Decrease)
2020 2019 $ Change % Change
Specialty wheat starches $ 19,334 $ 14,090 $ 5,244 37.2 %
Specialty wheat proteins 12,378 9,718 2,660 27.4
Commodity wheat starches 3,651 5,275 (1,624) (30.8)
Commodity wheat proteins 1,088 1,914 (826) (43.2)
Total Ingredient Solutions $ 36,451 $ 30,997 $ 5,454 17.6 %
Change in Year to Date versus Year to Date Sales Attributed to:
Total(a) Volume(b) Net Price/Mix(c)
Total Ingredient Solutions 17.6% 2.8% 14.8%
Other Financial Information
Year to Date versus Year to Date Increase
Year to Date Ended June 30, / (Decrease)
2020 2019 $ Change % Change
Gross profit $ 9,662 $ 4,440 $ 5,222 117.6 %
Gross margin % 26.5 % 14.3 % 12.2 pp(d)
(a) Total sales changes is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume.
(d) Percentage points ("pp").
Total Ingredient Solutions sales for year to date ended June 30, 2020 , increased
by $5,454 , or 17.6 percent, compared to the prior year period. The increase in
Ingredient Solutions sales was driven by higher sales of specialty wheat
starches and proteins, partially offset by a decrease in sales of commodity
wheat starches and proteins. The increase in sales of specialty wheat starches
and proteins was driven by increased sales volume and favorable average selling
prices. These increases were slightly offset by decreased sales volume of
commodity wheat starches. Commodity wheat proteins decreased due to decreased
sales volume and average selling price. Additionally, these increases were
partially offset by lost sales volume due to the shutdown of the Atchison
facilities as a result of the cyber-attack.
Gross profit increased by $5,222 , or 117.6 percent for year to date ended June
30, 2020 compared to the prior year period. Gross margin for the year to date
ended June 30, 2020 , increased to 26.5 percent from 14.3 percent for the prior
year period. The increase in gross profit was primarily driven by the increased
sales volume and favorable average selling prices of specialty wheat starches
and proteins and decreased sales volume of commodity wheat starches and proteins
(mix). These increases in gross profit were offset by increased production costs
due to the shutdown of the Atchison facilities as a result of the cyber-attack.
25
--------------------------------------------------------------------------------CASH FLOW, FINANCIAL CONDITION AND LIQUIDITY
We believe our financial condition continues to be of high quality, as evidenced by our ability to generate adequate cash from operations while having ready access to capital at competitive rates.
Operating cash flow and debt through our Credit Agreement and Note Purchase
Agreement (Note 4) provide the primary sources of cash to fund operating needs
and capital expenditures. These same sources of cash are used to fund
shareholder dividends and other discretionary uses. Going forward, we expect to
use cash to implement our invest to grow strategy, particularly in the
Distillery Products segment. Our overall liquidity reflects our strong business
results and an effective cash management strategy that takes into account
liquidity management, economic factors, and tax considerations. We expect our
sources of cash, including our Credit Agreement and Note Purchase Agreement, to
be adequate to provide for budgeted capital expenditures and anticipated
operating requirements for the foreseeable future.
Cash Flow Summary
Changes,
Year to Date Ended June 30, quarter versus
quarter
Increase /
2020 2019 (Decrease)
Cash provided by operating activities $ 5,986 $
3,070
Cash used in investing activities (12,407) (7,369) (5,038) Cash provided by financing activities 14,857 1,436 13,421 Increase (decrease) in cash and cash equivalents$ 8,436 $ (2,863) $ 11,299
Cash increased
Operating Activities. Cash provided by operating activities for year to date endedJune 30, 2020 was$5,986 . The cash provided by operating activities during the year to date endedJune 30, 2020 resulted primarily from net income of$18,332 , adjustments for non-cash or non-operating charges of$8,038 including depreciation and amortization, and share-based compensation, partially offset by uses of cash due to changes in operating assets and liabilities of$20,384 . The primary drivers of the changes in operating assets and liabilities were$13,174 use of cash related to an increase in accounts receivables, net due to the timing of customer payments as well as increased sales during the quarter,$9,983 use of cash related to an increase in inventories, primarily barreled distillate, and$4,218 use of cash related to decrease in accounts payable related to the timing of cash disbursements. These uses of cash were partially offset by$5,778 cash provided by income taxes payable (refundable) related to a deferral of our income tax payments untilJuly 15, 2020 in accordance with the Coronavirus Aid, Relief, and Economic Security Act . Cash provided by operating activities for year to date endedJune 30, 2019 was$3,070 . The cash provided by operating activities during the year to date endedJune 30, 2019 resulted primarily from net income of$17,631 , adjustments for non-cash or non-operating charges of$8,278 , including depreciation and amortization and share-based compensation, partially offset by uses of cash due to changes in operating assets and liabilities of$22,839 . The primary drivers of the changes in operating assets and liabilities were$9,238 use of cash related to an increase in inventories, primarily barreled distillate,$4,692 use of cash related to refundable income taxes, primarily due to discrete items and lower than expected income before taxes,$2,883 use of cash related to a decline in accounts payable related to the timing of cash disbursement and$2,807 use of cash related to an increase in receivables, due to increased sales and timing of customer payments, and$2,750 use of cash related to accrued expenses. Investing Activities. Cash used in investing activities for year to date endedJune 30, 2020 was$12,407 , which resulted from an increase in additions to property, plant and equipment of$10,177 (see Capital Spending) and increase related to the acquisition of a business of$2,750 , partially offset by proceeds from sale of property of$688 . Cash used in investing activities for year to date endedJune 30, 2019 was$7,369 , which primarily resulted from an increase in additions to property, plant and equipment of$6,192 (see Capital Spending). 26 -------------------------------------------------------------------------------- Capital Spending. We manage capital spending to support our business growth plans. Investments in property, plant and equipment were$10,177 and$6,192 for year to date endedJune 30, 2020 and 2019, respectively. Adjusted for the change in capital expenditures in accounts payable for year to date endedJune 30, 2020 and 2019, of$(3,865) and$(1,769) , respectively, total capital expenditures were$6,312 and$4,423 , respectively. We expect approximately$19,600 in capital expenditures in 2020 for facility improvement and expansion (including warehouse expansion), facility sustenance projects, and environmental health and safety projects. As part of our strategic plan to support the growth of the American Whiskey category, we previously announced a warehouse expansion project. As ofJune 30, 2020 , we had incurred approximately$49,800 of the total investment. The current expansion is substantially completed with incremental immaterial investment expected in the third quarter 2020 to finalize the project. Financing Activities. Cash provided by financing activities for year to date endedJune 30, 2020 was$14,857 , primarily due to net proceeds from debt of$24,501 (see Long-Term and Short-Term Debt), partially offset by purchases of treasury stock of$4,395 (see Treasury Purchases and Stock Repurchases) and dividends and dividend equivalents of$4,101 (see Dividends and Dividend Equivalents). Cash provided by financing activities for year to date endedJune 30, 2019 was$1,436 , primarily due to net proceeds from debt of$10,408 (See Long-Term and Short-Term Debt), offset by purchases of treasury stock for tax withholding on share-based compensation of$5,467 (see Treasury Purchases) and payments of dividends and dividend equivalents of$3,427 (see Dividends and Dividend Equivalents).
Treasury Purchases. 30,388 RSUs vested and converted to common shares for
employees during year to date ended
233,854 RSUs vested and converted to common shares for employees during year to date endedJune 30, 2019 , of which we withheld and purchased for treasury 77,002 shares valued at$5,467 to cover payment of associated withholding taxes. Share Repurchases. OnFebruary 25, 2019 , our Board of Directors approved a$25,000 share repurchase authorization commencingFebruary 27, 2019 , throughFebruary 27, 2022 . Under the share repurchase program, we can repurchase stock from time to time for cash in open market purchases, block transactions, and privately negotiated transactions in accordance with applicable federal securities laws. This share repurchase program may be modified, suspended, or terminated by us at any time without prior notice. During the year to date endedJune 30, 2020 , 159,104 shares were repurchased under the program for$4,053 .
Dividends and Dividend Equivalents
Dividend and Dividend Equivalent Information (per Share and Unit)
Dividend Dividend equivalent
Declaration date Record date Payment date Declared Paid payment payment(a)(b) Total payment(b)
2020
February 24, 2020 March 13, 2020 March 27, 2020 $ 0.12 $ 0.12 $ 2,047 $ 13 $ 2,060
April 28, 2020 May 22, 2020 June 5, 2020 0.12 0.12 2,027 14 2,041
$ 0.24 $ 0.24 $ 4,074 $ 27 $ 4,101
2019
February 25, 2019 March 13, 2019 March 29, 2019 $ 0.10 $ 0.10 $ 1,701 $ 13 $ 1,714
April 29, 2019 May 15, 2019 May 31, 2019 0.10 0.10 1,702 11 1,713
$ 0.20 $ 0.20 $ 3,403 $ 24 $ 3,427 (a) Dividend equivalent payments on unvested participating securities. (b) Includes estimated forfeitures.
OnJuly 28, 2020 , our Board of Directors declared a quarterly dividend payable to stockholders of record as ofAugust 21, 2020 , of the Company's Common Stock, and a dividend equivalent payable to holders of certain RSUs as ofAugust 21, 2020 , of$0.12 per share and per unit, payable onSeptember 4, 2020 . 27 -------------------------------------------------------------------------------- Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including brand development and share repurchase activities) and the overall cost of capital. Total debt was$64,533 (net of unamortized loan fees of$1,477 ) atJune 30, 2020 , and$41,060 (net of unamortized loan fees of$448 ) atDecember 31, 2019 . Financial Condition and Liquidity. Our principal uses of cash in the ordinary course of business are for input costs used in our production processes, salaries, capital expenditures, and investments supporting our strategic plan, such as the aging of barreled distillate. As part of our strategy, as demand grows for American whiskeys, in boththe United States and global markets, we are building our inventories of aged premium whiskeys to fully participate in this growth (see "Barreled distillate (bourbons and whiskeys)" in Note 1).
Generally, during periods when commodities prices are rising, our operations require increased use of cash to support inventory levels.
Our principal sources of cash are product sales and borrowing on our Credit
Agreement and Note Purchase Agreement. Under our Credit Agreement and Note
Purchase Agreement, we must meet certain financial covenants and restrictions,
and at
AtJune 30, 2020 , our current assets exceeded our current liabilities by$177,843 , largely due to our inventories, at cost, of$147,108 . AtJune 30, 2020 , our cash balance was$11,745 and we have used our Credit Agreement and Note Purchase Agreement for liquidity purposes, with$275,000 remaining for additional borrowings. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We regularly assess our cash needs and the available sources to fund these needs. While we currently believe we are well positioned with our credit agreement, we will continue to monitor the impact of the COVID-19 pandemic on our operations and liquidity needs. We utilize short-term and long-term debt to fund discretionary items, such as capital investments and dividend payments. In addition, we have strong operating results such that financial institutions should provide sufficient credit funding to meet short-term financing requirements, if needed.
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