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MarketScreener Homepage  >  Equities  >  Nasdaq  >  The Andersons, Inc.    ANDE

THE ANDERSONS, INC.

(ANDE)
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ANDERSONS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/05/2020 | 02:13pm EST
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 others, including those risk factors listed
under Item 1A of our Annual Report on Form 10-K for the year ended December 31,
2019 ("2019 Form 10-K") and Part II, Item 1A. Risk Factors in this Quarterly
Report on Form 10-Q. 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
management believes that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.

Critical Accounting Policies and Estimates


Our critical accounting policies and critical accounting estimates, as described
in our 2019 Form 10-K, have not materially changed through the third quarter of
2020.

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 and aligns with the management structure.


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 agricultural 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.

The Company has considered the potential impact of the book value of the
Company's total shareholders' equity exceeded the Company's market
capitalization for impairment indicators. Management ultimately concluded that,
while the Company's shareholders equity exceeded the market capitalization for
the period, an impairment triggering event had not occurred. The Company
continues to believe that the share price is not an accurate reflection of its
current value. While adverse conditions are currently present and pervasive in
the agriculture space during this time, the long-term outlook remains positive
and management believes that the market's impact on the Company's equity value
does not accurately reflect the impact of these external factors on the Company.
As a result of prior period tests, reviews of current operating results and
other relevant market factors, the Company concluded that no impairment trigger
existed as of September 30, 2020. However, continuing adverse market conditions
or alternative management decisions on operations may result in future
impairment considerations.

Recent Developments


For fiscal year 2020 to date, the global emergence of the novel strain of
coronavirus ("COVID-19") has had a significant impact on the global economy,
including several industries in which The Andersons operates.
Government-mandated stay-at-home orders and other public health mandates and
recommendations, as well as behavioral changes in response to the pandemic, have
reduced demand for gasoline, ethanol and corn. The reduced demand coupled with a
general economic downturn has negatively impacted our Rail, Ethanol and Trade
Groups. As previously announced the Company idled its ethanol plants for
extended maintenance shutdowns in an effort to maintain the Company's ethanol
plants, protect employees and conserve cash. Since that announcement, all of the
Company's ethanol plants resumed operations in the second quarter and continue
to operate. The Company is continuing to actively manage its response to the
COVID-19 pandemic, however, the future impacts of the ongoing pandemic on the
Company's business remain highly uncertain at this time.

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The Company is a critical infrastructure industry as defined by The United
States Department of Homeland Security, Cybersecurity and Infrastructure Agency,
in its March 19, 2020 Memorandum. As COVID-19 continues to spread and certain
regions experience accelerated spread or resurgences, the Company is currently
conducting business as usual to the greatest extent possible in the current
circumstances. The Company is taking a variety of measures to ensure the
availability of its services throughout our network, promote the safety and
security of our employees, and support the communities in which we operate.
Certain modifications the Company has made in response to the COVID-19 pandemic
include: implementing working at home protocols for all non-essential support
staff; restricting employee business travel; strengthening clean workplace
practices; reinforcing socially responsible sick leave recommendations; limiting
visitor and third-party access to Company facilities; launching internal
COVID-19 resources for employees; creating a pandemic response team comprised of
employees and members of senior management; encouraging telephonic and video
conference-based meetings along with other hygiene and social distancing
practices recommended by health authorities including Health Canada, the U.S.
Centers for Disease Control and Prevention, and the World Health Organization;
and maintaining employment benefit coverage of employees through the pandemic.
The Company is responding to this crisis through measures designed to protect
our workforce and prevent disruptions to the Company's operations within the
North American agricultural supply chain.

Management has observed many other companies, including those in our supply
chain, taking precautionary and preemptive actions to address the COVID-19
pandemic, and companies may take further actions that alter their normal
business operations. The Company will continue to actively monitor the situation
and may take further actions that could materially alter our business operations
as may be required or recommended by federal, provincial, state or local
authorities, or that management determines are in the best interests of our
employees, customers, shareholders, partners, suppliers, and other stakeholders.

Additional information concerning the impact COVID-19 may have to our future business and results of operations is provided in Part II, Item 1A. Risk Factors.

Trade


The Trade Group's results in the third quarter improved over the prior year from
strong results in the commodity merchandising business. The performance of the
Group's assets improved slightly despite earning less income from wheat. The
business also continued to benefit from the successful integration of prior year
acquisitions, portfolio optimization and other cost-cutting efforts.

Conversely, the food and specialty ingredients business netted lower results
that were driven by higher freight costs and lower volume, particularly in the
food business.

Agricultural inventories on hand at September 30, 2020 were 82.3 million
bushels, of which 2.3 million bushels were stored for others. These amounts
compare to 97.5 million bushels on hand at September 30, 2019, of which 2.7
million bushels were stored for others. Total Trade storage capacity, including
temporary pile storage, was approximately 199.5 million bushels at September 30,
2020 compared to 202 million bushels at September 30, 2019.

The 2020 corn and soybean harvest is much improved from the short crop in the
Eastern corn belt that hurt the Group in the prior year. However, nationwide,
this year's crop is smaller and drier than originally anticipated. Export demand
has been improving, especially from China, which we expect to run well into the
first quarter. These conditions have led to a significant increase in basis,
strong elevation margins and considerable volatility, which should create good
merchandising opportunities.

Nearby futures prices have rallied, creating an inverse in corn, soybean and
wheat markets. If those conditions persist, they will diminish the opportunity
to earn storage income through the first part of 2021. As a result of these
conditions, the current outlook for the Trading Group in the next four quarters
is stronger on merchandising but weaker on income from assets.

Ethanol


The Ethanol Group's third quarter results were profitable as improved crush
margins were the primary driver of significantly improved performance by the
Group's five plants combined with higher ethanol and feed ingredient trading
results. These improved results were partially offset by non-cash mark-to-market
charges due to increases in corn and DDG prices late in the quarter.

Spot ethanol crush margins continue to be positive but, similar to grain markets, are inverted. The Group continues to line out some of the new technologies being used in the ELEMENT plant and are now producing a new high-protein feed product at both ELEMENT and at our Denison, Iowa plant. Uncertainty persists regarding how 2020 will finish and 2021 will begin hinging on the balance between gasoline demand and ethanol industry supply.

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Table of Contents Ethanol and related co-products volumes for the three and nine months ended September 30, 2020 and 2019 were as follows:

                                                                 Three months ended September 30,                           Nine months ended September 30,
(in thousands)                                                 2020                              2019                    2020                              2019
Ethanol (gallons shipped)                                     169,409                            131,878                436,282                            393,203
E-85 (gallons shipped)                                          7,455                              9,284                 20,955                             36,412
Corn oil (pounds shipped)                                      33,257                              5,067                 83,519                             14,821
DDG (tons shipped) *                                              536                                468                  1,384                              1,270


* DDG tons shipped converts wet tons to a dry ton equivalent amount. Prior year
DDG tons shipped were recast from the Trade Group to the Ethanol Group. See note
12 for further details of the recast.

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 are now included in the 2020 amounts above.
Total ethanol, DDG, and corn oil production by the unconsolidated LLCs in 2019
is actually higher than disclosed above. However, the portion of this volume
that was sold from the unconsolidated LLCs directly to their customers for the
nine months ended September 30, 2019 is excluded here.

Plant Nutrient


The Plant Nutrient Group's third quarter results were an improvement from the
prior period. While tons sold were largely unchanged, the improvement was driven
by slightly better margin per ton and continued disciplined expense management.

We expect our Plant Nutrient business to finish the year strong with the fall application season trending well. We expect some modest improvement in 2021 assuming continued higher commodity prices and another strong planting season.


Storage capacity at our Ag Supply Chain and Specialty Liquids facilities,
including leased storage, was approximately 477 thousand tons for dry nutrients
and approximately 509 thousand tons for liquid nutrients at September 30, 2020,
compared to approximately 487 thousand tons for dry nutrients and approximately
514 thousand tons for liquid nutrients at September 30, 2019.

Tons of product sold for the three and nine months ended September 30, 2020 and
2019 were as follows:
                                                        Three months ended September 30,                        Nine months ended September 30,
(in thousands)                                        2020                             2019                   2020                            2019
Ag Supply Chain                                          273                               280                1,178                               977
Specialty Liquids                                         64                                57                  257                               249
Engineered Granules                                       59                                58                  331                               338
Total tons                                               396                               395                1,766                             1,564



In the table above, Ag Supply Chain represents facilities principally engaged in
the wholesale distribution and retail sale and application of primary
agricultural nutrients such as bulk nitrogen, phosphorus, and potassium.
Specialty Liquid locations produce and sell a variety of low-salt liquid starter
fertilizers, micronutrients for agricultural use, and specialty products for use
in various industrial processes.  Engineered Granules facilities primarily
manufacture granulated dry products for use in specialty turf and agricultural
applications and a variety of corncob-based products.
Rail

The Rail Group results declined as the leasing business accounted for the
majority of the shortfall due to lower lease rates and fleet utilization year
over year; repair revenues and margins also fell. Average utilization rates
decreased from 89.2 percent in the third quarter of 2019 to 87.0 percent in the
third quarter of 2020 as the Group had fewer cars on lease from the sand and
ethanol market headwinds. Rail Group assets under management (owned, leased or
managed for financial institutions in non-recourse arrangements) at
September 30, 2020 were 23,463 compared to 24,864 at September 30, 2019.

The COVID-19 pandemic has caused the idling of nearly one-third of the North
American railcar fleet and has driven year-to-date railcar loadings lower year
over year. These conditions are expected to continue until the general economy
returns to normal levels, and will continue to negatively impact lease renewals,
lease rates and demand for railcar repairs.

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Other
Our "Other" activities include corporate income 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, and other elimination and consolidation
adjustments.

Operating Results

The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Operations and includes a separate discussion by segment. Additional segment information is included herein in Note 12, Segment Information.

Comparison of the three months ended September 30, 2020 with the three months ended September 30, 2019 including a reconciliation of GAAP to non-GAAP measures:

                                                                               Three months ended September 30, 2020
(in thousands)                              Trade              Ethanol            Plant Nutrient            Rail              Other              Total

Sales and merchandising revenues $ 1,432,922$ 349,957

     $       102,707$ 36,647          $      -          $ 1,922,233
Cost of sales and merchandising
revenues                                  1,367,350            338,788                   86,211            28,049                 -            1,820,398
Gross profit                                 65,572             11,169                   16,496             8,598                 -              101,835
Operating, administrative and general
expenses                                     58,385              5,650                   21,175             5,609             7,400               

98,219


Interest expense (income), net                4,380              1,651                    1,287             3,716              (465)              

10,569

Equity in earnings of affiliates, net            20                  -                        -                 -                 -                   20
Other income, net                             3,114                553                      579               588              (400)               4,434

Income (loss) before income taxes $ 5,941$ 4,421

     $        (5,387)$   (139)$ (7,335)$    (2,499)
Income (loss) before income taxes
attributable to the noncontrolling
interests                                         -              3,273                        -                 -                 -                

3,273

Non-GAAP Income (loss) before income
taxes attributable to the Company       $     5,941$   1,148$        (5,387)$   (139)$ (7,335)$    (5,772)



                                                                               Three months ended September 30, 2019
(in thousands)                              Trade              Ethanol            Plant Nutrient            Rail              Other              Total

Sales and merchandising revenues $ 1,515,107$ 319,105

     $       109,446$ 39,097          $      -          $ 1,982,755
Cost of sales and merchandising
revenues                                  1,441,728            311,022                   93,595            27,269                 -            1,873,614
Gross profit                                 73,379              8,083                   15,851            11,828                 -              109,141
Operating, administrative and general
expenses                                     68,491              5,142                   21,970             5,334             6,181             

107,118


Interest expense (income), net                7,788                291                    1,831             4,211              (146)              

13,975

Equity in earnings (losses) of
affiliates, net                                 (98)            (3,630)                       -                 -                 -               (3,728)
Other income (expense), net                     876                417                      510               854               (59)               2,598

Income (loss) before income taxes $ (2,122)$ (563)

     $        (7,440)$  3,137$ (6,094)$   (13,082)
Income (loss) before income taxes
attributable to the noncontrolling
interests                                         -             (1,633)                       -                 -                 -               

(1,633)

Non-GAAP Income (loss) before income
taxes attributable to the Company       $    (2,122)$   1,070$        (7,440)$  3,137$ (6,094)$   (11,449)



Trade

Operating results for the Trade Group increased by $8.1 million compared to the
results of the same period last year. Sales and merchandising revenues decreased
by $82.2 million and cost of sales and merchandising revenues decreased by $74.4
million for an unfavorable net gross profit impact of $7.8 million. The
performance of the unit's assets improved through strong corn and soybean sales
despite earning less income from wheat. The business also continued to benefit
from the successful integration of the LTG and Thompson's businesses.
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Operating, administrative and general expenses decreased by $10.1 million. The
decrease from the prior year is primarily related to the divestiture of the farm
services business, winding down operations at select sand locations and the
Company's cost saving initiatives, much of which is headcount reductions, both
from acquisition integration and in response to the COVID-19 pandemic.

Interest expense decreased by $3.4 million due to the Company paying down debt,
declining interest rates and lower group borrowings on the Company's short-term
line of credit compared to the prior year.

Other income increased by $2.2 million from prior year due to a gain on the sale of a grain location in the current year.

Ethanol


Operating results for the Ethanol Group increased by $0.1 million from the same
period last year. Sales and merchandising revenues increased by $30.9 million
and cost of sales and merchandising revenues increased by $27.8 million compared
to prior year results. Gross profit increased by $3.1 million compared to 2019
results from improved production at the facilities and that this activity was
captured in the Equity in earnings of affiliates line item in the prior year.

Operating, administrative and general expenses increased by $0.5 million from
the increase in labor and benefits from the TAMH merger, as these expenses are
now reflected in consolidated earnings. This increase was partially offset by
lower labor and incentive compensation costs from cost cutting initiatives.

Interest expense increased by $1.4 million due to the inclusion of interest expense as a result of the consolidation of TAMH and ELEMENT's ability to capitalize interest related to the construction of the ELEMENT facility in the prior year.

Equity in earnings of affiliates increased by $3.6 million as a result of the former unconsolidated ethanol LLCs being merged into TAMH, a consolidated entity.

Plant Nutrient


Operating results for the Plant Nutrient Group increased by $2.1 million
compared to the same period in the prior year. Sales and merchandising revenues
decreased by $6.7 million and cost of sales and merchandising revenues decreased
by $7.4 million resulting in a slight improvement in gross profit. The increase
in gross profit was driven by improved margins within Ag supply chain that was
offset by decreased volumes.

Operating, administrative and general expenses decreased by $0.8 million due to
more efficient production compared to the prior year as well as cost cutting
initiatives.

Interest expense decreased by $0.5 million due to lower interest rates.

Rail


Operating results declined by $3.3 million from the same period last year. Sales
and merchandising revenues decreased by $2.5 million driven by a $4.0 million
decrease in leasing revenues that was partially offset by a $1.1 million
increase in car sale revenues and a $0.4 million increase in repair revenues.
Cost of sales and merchandising revenues increased by $0.8 million compared to
the prior year due to increased car sale revenues from the prior year. As a
result, gross profit decreased by $3.2 million compared to the same period last
year.

Operating, administrative and general expenses increased by $0.3 million due to
an increase to bad debt expense resulting from headwinds in the ethanol and sand
markets.

Interest expense decreased by $0.5 million due to lower interest rates.

Other


Operating results for the third quarter declined by $1.2 million compared to the
same period in 2019. The increase in operating losses was primarily driven by
higher operating, administrative and general expenses due to $3.2 million of
severance related expense associated with the departure of certain executive
officers and key employees. These severance costs were offset by run-rate labor
and benefit expense savings from prior quarter headcount reductions.
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Income Taxes


For the three months ended September 30, 2020, the Company recorded an income
tax benefit of $4.7 million at an effective rate of 188.6%. For the three months
ended September 30, 2019, the Company recorded an income tax benefit of $7.2
million at an effective tax rate of 55.1%. The increase in effective tax rate
for the three months ended September 30, 2020 as compared to the same period
last year was primarily attributed to nondeductible income related to our
noncontrolling interests within the Ethanol group. These losses were offset by
NOL carryback tax savings opportunities as provided by the CARES Act.


Comparison of the nine months ended September 30, 2020 with the nine months ended September 30, 2019 including a reconciliation of GAAP to non-GAAP measures:

                                                                                Nine months ended September 30, 2020
(in thousands)                              Trade              Ethanol            Plant Nutrient             Rail              Other               

Total

Sales and merchandising revenues $ 4,162,130$ 886,742

     $       507,445$ 109,202          $       -          $ 5,665,519
Cost of sales and merchandising
revenues                                  3,974,710            907,571                  431,820             80,187                  -            5,394,288
Gross profit                                187,420            (20,829)                  75,625             29,015                  -              271,231
Operating, administrative and general
expenses                                    181,539             17,271                   59,197             16,052             19,356              

293,415


Interest expense (income), net               16,624              5,908                    4,535             12,032             (1,116)              

37,983

Equity in earnings (losses) of
affiliates, net                                 228                  -                        -                  -                  -                  228
Other income (expense), net                   6,865              1,465                      935              2,543                889               12,697

Income (loss) before income taxes $ (3,650)$ (42,543)

     $        12,828$   3,474$ (17,351)$   (47,242)
Income (loss) before income taxes
attributable to the noncontrolling
interests                                         -            (20,583)                       -                  -                  -              

(20,583)

Non-GAAP Income (loss) before income
taxes attributable to the Company       $    (3,650)$ (21,960)$        12,828$   3,474$ (17,351)$   (26,659)


                                                                                Nine months ended September 30, 2019
(in thousands)                              Trade              Ethanol            Plant Nutrient             Rail              Other               

Total

Sales and merchandising revenues $ 4,753,375$ 899,137

     $       508,548$ 123,528          $       -          $ 6,284,588
Cost of sales and merchandising
revenues                                  4,511,931            879,164                  432,965             80,995                  -            5,905,055
Gross profit                                241,444             19,973                   75,583             42,533                  -              379,533
Operating, administrative and general
expenses                                    206,875             15,815                   66,218             21,225             17,252              327,385
Asset impairment                              3,081                  -                        -                  -                  -                3,081
Interest expense (income), net               28,740             (1,232)                   6,478             12,071               (444)              

45,613

Equity in earnings (losses) of
affiliates, net                              (1,843)              (524)                       -                  -                  -               (2,367)
Other income (expense), net                   1,705                696                    1,647              1,392              1,209                6,649

Income (loss) before income taxes $ 2,610$ 5,562

     $         4,534          $  10,629$ (15,599)$     7,736
Income (loss) before income taxes
attributable to the noncontrolling
interests                                         -             (2,265)                       -                  -                  -               

(2,265)

Non-GAAP Income (loss) before income
taxes attributable to the Company       $     2,610$   7,827          $         4,534          $  10,629$ (15,599)$    10,001



Trade

Operating results for the Trade Group decreased by $6.3 million compared to the
results of the same period last year. Sales and merchandising revenues decreased
by $591.2 million and cost of sales and merchandising revenues decreased by
$537.2 million for a decreased gross profit impact of $54.0 million. The
decrease in gross profit was primarily driven by the lack of appreciation of
corn and wheat basis and the decreased oil demand creating headwinds in the
Company's sand operations when compared to the prior year. The performance of
the unit's assets improved through strong corn and soybean sales despite
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earning less income from wheat. The business also continued to benefit from the
successful integration of the LTG and Thompson's businesses.

Operating, administrative and general expenses decreased by $25.3 million. The
decrease from the prior year is primarily related to $11.0 million of
transaction expenses in the prior period that did not recur in the current year,
the divestiture of our farm services business and the Company's cost saving
initiatives, much of which is headcount reduction, both from acquisition
integration and in response to the COVID-19 pandemic.

Interest expense decreased by $12.1 million due to the Company paying down debt,
declining interest rates and lower group borrowings on the Company's short-term
line of credit compared to the prior year.

Other income increased by $5.2 million as there were approximately $2.0 million
worth of insurance settlements in the current year, an initial remeasurement
loss of $1.1 million on the Company's preexisting equity method investment in
LTG and Thompsons that didn't recur and a $1.3 million gain on sale of a grain
location in the current year.

Ethanol


Operating results for the Ethanol Group decreased by $29.8 million from the same
period last year. Sales and merchandising revenues decreased by $12.4 million
and cost of sales and merchandising revenues increased by $28.4 million compared
to prior year. As a result, gross profit decreased by $40.8 million compared to
prior year, as decreased driving demand due to the COVID-19 pandemic lead to an
over supply of ethanol. The negative margin environment existing through most of
the second quarter rebounded through the third quarter.

Operating, administrative and general expenses increased by $1.5 million
primarily due to an increase in labor and benefits from the TAMH merger as these
expenses are now reflected in consolidated earnings. This increase was partially
offset by lower labor and incentive compensation costs from cost cutting
initiatives.

Interest expense increased by $7.1 million due to the inclusion of interest expense related to the consolidation of TAMH and due to ELEMENT's ability to capitalize a portion of interest related to the construction of the ELEMENT facility in the prior year.


Equity in earnings of affiliates increased by $0.5 million as a result of the
former unconsolidated ethanol LLCs being merged into the consolidated entity of
TAMH.

Plant Nutrient

Operating results for the Plant Nutrient Group increased by $8.3 million
compared to the same period in the prior year. Sales and merchandising revenues
decreased $1.1 million and cost of sales and merchandising revenues decreased by
$1.1 million resulting in gross profit being flat. Gross profit was flat year
over year as increases in volumes from more normal planting conditions were
offset by lower margins.

Operating, administrative and general expenses decreased by $7.0 million due to
more efficient production compared to the prior year as well as cost cutting
initiatives.

Interest expense decreased by $1.9 million from lower interest rates compared to the prior year.


Rail

Operating results decreased by $7.2 million from the same period last year.
Sales and merchandising revenues decreased by $14.3 million driven by an
$11.7 million decrease in leasing revenues, a $1.2 million decrease in car sale
revenue and a $1.4 million decrease in repair and other revenue. Cost of sales
and merchandising decreased by $0.8 million compared to the prior year due to
cars on lease, average lease rate and utilization all being lower as railcar
loadings continued to decrease from the prior year. As a result, gross profit
decreased by $13.5 million compared to the same period last year.

Operating, administrative and general expenses decreased by $5.2 million driven by more efficient labor costs within the repair business.

Other income increased by $1.2 million due to more end of lease settlements in the current year.

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Other

Operating results declined by $1.8 million from the same period last year. The
increase in operating losses was primarily driven by higher operating,
administrative and general expenses due to $5.6 million of severance related
expense associated with the departure of certain executive officers and key
employees. These severance costs were offset by run-rate labor and benefit
expense reductions from prior quarter headcount reductions.

Income Taxes


For the nine months ended September 30, 2020, the Company recorded an income tax
benefit of $18.4 million at an effective rate of 38.9%. For the nine months
ended September 30, 2019, the Company recorded an income tax benefit of $1.7
million at an effective tax rate of 21.4%. The increase in effective tax rate
for the nine months ended September 30, 2020 as compared to the same period last
year primarily attributed to nondeductible income related to our noncontrolling
interests within the Ethanol group. These losses were offset by NOL carryback
tax savings opportunities as provided by the CARES Act.


Liquidity and Capital Resources
Working Capital
At September 30, 2020, the Company had working capital of $443.7 million. The
following table presents changes in the components of current assets and current
liabilities:
                                                       September 30,         September 30,
(in thousands)                                             2020                  2019               Variance
Current Assets:
Cash, cash equivalents and restricted cash            $     13,693$     21,299$  (7,606)
Accounts receivable, net                                   529,584               523,110              6,474
Inventories                                                754,604               741,086             13,518
Commodity derivative assets - current                      140,066               120,510             19,556
Other current assets                                       102,302                82,770             19,532
Total current assets                                  $  1,540,249$  1,488,775$  51,474
Current Liabilities:
Short-term debt                                            100,405               138,249            (37,844)
Trade and other payables                                   641,812               594,708             47,104
Customer prepayments and deferred revenue                   49,573                35,274             14,299
Commodity derivative liabilities - current                  79,159                67,606             11,553
Current maturities of long-term debt                        67,786                66,899                887
Accrued expenses and other current liabilities             157,801               162,749             (4,948)
Total current liabilities                             $  1,096,536$  1,065,485$  31,051
Working Capital                                       $    443,713$    423,290$  20,423



Current assets as of September 30, 2020 increased $51.5 million in comparison to
those as of September 30, 2019. This increase was noted in all areas except for
cash. The increases in accounts receivable and inventory balances can largely be
attributable to the consolidation of the TAMH entity on October 1, 2019 as the
plants comprising this entity were recorded as equity method investments in the
comparable period. Current commodity derivative assets and liabilities, which
reflects the customer net asset or liability based on the value of forward
contracts as compared to market prices at the end of the period, show a net
increase. The increase in other assets is due to significant prepaid federal
income taxes as a result of the CARES Act. See also the discussion below on
additional sources and uses of cash for an understanding of the decrease in cash
from prior year.
Current liabilities increased $31.1 million compared to the prior year primarily
due to increases in trade and other payables and customer prepayments and
deferred revenue offset by reductions in short-term debt. The increase in trade
and other payables can largely be attributable to the consolidation of the TAMH
entity on October 1, 2019 as the plants comprising this entity were recorded as
equity method investments in the comparable period. The increase in customer
prepayments was driven by larger customer prepayments within the Trade business.
The decrease in short-term debt is the result of lower working capital needs.

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Sources and Uses of Cash
                                                                            Nine Months Ended
                                                                   September 30,        September 30,
(in thousands)                                                          2020                 2019
Net cash provided by operating activities                          $   195,791$   319,625
Net cash used in investing activities                                  (70,159)            (334,871)
Net cash provided by (used in) financing activities                   (166,427)              12,257



Operating Activities
Our operating activities provided cash of $195.8 million and $319.6 million in
the first nine months of 2020 and 2019, respectively. The decrease in cash
provided was primarily due to a result in the change of working capital, as
discussed above, and lower operating results.

Investing Activities
Investing activities used cash of $70.2 million through the first nine months of
2020 compared to cash used of $334.9 million in the prior year. The decrease
from the prior year was a result of the acquisition of LTG in the prior year and
a strategic reduction of capital spending in the current year to enhance overall
liquidity and cash management.
In 2020, management expects to spend up to a total of approximately $35.0
million for the purchase of railcars and related leases and capitalized
modifications of railcars. Total capital spending on property, plant and
equipment in our base business excluding rail leasing activity, but inclusive of
information technology spending, is expected to be approximately $100 million
for 2020.

Financing Activities
Financing activities used cash of $166.4 million and provided cash of $12.3
million for the nine months ended September 30, 2020 and 2019, respectively.
This change from the prior year was largely due to a decrease in proceeds as new
debt was issued in the prior year to finance the LTG acquisition and a current
year reduction in short term borrowings consistent with the Company's strategy
and focus to pay down debt.
The Company is party to borrowing arrangements with a syndicate of banks that
provide a total of $1,693.2 million in borrowings. Of the total capacity, $500.1
million is non-recourse to the Company. As of September 30, 2020, the Company
had $1,358.9 million available for borrowing with $250.1 million of that total
being non-recourse to the Company.

The Company paid $17.2 million in dividends in the first nine months of 2020
compared to $16.6 million in the prior year. The Company paid $0.175 per common
share for the dividends paid in January, April and July of 2020 and $0.17 per
common share for the dividends paid in January, April and July of 2019. On
August 21, 2020, the Company declared a cash dividend of $0.175 per common share
payable on October 22, 2020 to shareholders of record on October 1, 2020.
Certain of our long-term borrowings include covenants that, among other things,
impose minimum levels of equity and limitations on additional debt. The Company
is in compliance with all such covenants as of September 30, 2020. 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 the Company is a significant borrower 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, the Company could receive a return of cash.
While the effects of the COVID-19 pandemic have had a negative impact on
operating cash flows and the continuing effects remain uncertain, management
believes our sources of liquidity will be adequate to fund our operations,
capital expenditures and service our indebtedness.

At September 30, 2020, the Company had standby letters of credit outstanding of $25.7 million.



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