THE ANDERSONS, INC. 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 endedDecember 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 ofSeptember 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.
27--------------------------------------------------------------------------------
Table of Contents
The Company is a critical infrastructure industry as defined byThe United States Department of Homeland Security ,Cybersecurity and Infrastructure Agency , in itsMarch 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 includingHealth Canada , theU.S. Centers for Disease Control and Prevention , and theWorld 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 atSeptember 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 atSeptember 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 atSeptember 30, 2020 compared to 202 million bushels atSeptember 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 fromChina , 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 theTrading 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
28--------------------------------------------------------------------------------
Table of Contents
Ethanol and related co-products volumes for the three and nine months ended
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 atSeptember 30, 2020 , compared to approximately 487 thousand tons for dry nutrients and approximately 514 thousand tons for liquid nutrients atSeptember 30, 2019 . Tons of product sold for the three and nine months endedSeptember 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. RailThe 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) atSeptember 30, 2020 were 23,463 compared to 24,864 atSeptember 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. 29 -------------------------------------------------------------------------------- Table of Contents 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
Three months ended September 30, 2020
(in thousands) Trade Ethanol Plant Nutrient Rail Other Total
Sales and merchandising revenues
$ 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
$ (5,387) $ (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
$ 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
$ (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 theTrade 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 andThompson's businesses. 30
--------------------------------------------------------------------------------
Table of Contents
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
Ethanol
Operating results for theEthanol 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
Equity in earnings of affiliates increased by
Plant Nutrient
Operating results for thePlant 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
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
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. 31
--------------------------------------------------------------------------------
Table of Contents
Income Taxes
For the three months endedSeptember 30, 2020 , the Company recorded an income tax benefit of$4.7 million at an effective rate of 188.6%. For the three months endedSeptember 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 endedSeptember 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
Nine months ended September 30, 2020
(in thousands) Trade Ethanol Plant Nutrient Rail Other Total
Sales and merchandising revenues
$ 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
$ 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
$ 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
$ 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 theTrade 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 32 -------------------------------------------------------------------------------- Table of Contents earning less income from wheat. The business also continued to benefit from the successful integration of the LTG andThompson'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 theEthanol 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
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 thePlant 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
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
Other income increased by
33
--------------------------------------------------------------------------------
Table of Contents
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 endedSeptember 30, 2020 , the Company recorded an income tax benefit of$18.4 million at an effective rate of 38.9%. For the nine months endedSeptember 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 endedSeptember 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 AtSeptember 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 ofSeptember 30, 2020 increased$51.5 million in comparison to those as ofSeptember 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 onOctober 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 onOctober 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. 34 --------------------------------------------------------------------------------
Table of Contents
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
35
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
