What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-30 compared with 2020-04-30 · 209 added, 70 removed, 147 unchanged (65% of the section changed)

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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 ended December 31, 2019.

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.

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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 of June 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.

In May 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.

MGP is a leading producer and supplier of premium distilled spirits and specialty wheat protein and starch food ingredients.

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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 Condition and Results of Operations - General, set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.

Condition and Results of Operations - General, set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.

RESULTS OF OPERATIONS

Consolidated results

The table below details the consolidated results for the quarters ended March 31, 2020 and 2019:

Quarter Ended March 31,

The table below details the consolidated results for the quarters ended June 30, 2020 and 2019:

Quarter Ended June 30,

2020 2019 2020 v.

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Income before income taxes 11,040 10,553 4.6

Income tax expense (benefit) 3,224 (1,459) (321.0)

Income tax expense 2,550 2,642 (3.5)

Effective tax expense rate % 23.1 % 25.0 % (1.9) pp

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(a) Percentage points (“pp”).

Sales - Sales for quarter ended March 31, 2020 were $99,082, an increase of 11.2% 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 7.3 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol, industrial alcohol and warehouse services.

Sales - Sales for quarter ended June 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 ended March 31, 2020 was $23,211, an increase of 39.3 percent compared to the year-ago quarter.

The increase was driven by an increase in gross profit in both Ingredient Solutions and Distillery Products segments.

Gross profit - Gross profit for quarter ended June 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 increased by $3,010, or 19.8 percent (see Segment Results).

SG&A expenses - SG&A expenses for quarter ended March 31, 2020 were $9,503, an increase of 16.6 percent compared to the year-ago quarter.

The increase in SG&A was primarily due to higher incentive compensation, inclusive of certain incremental costs incurred relating to the transition at the CEO position.

Operating income - Operating income for quarter ended March 31, 2020 increased to $13,708 from $8,513 for quarter ended March 31, 2019, primarily due to an increase in gross profit in both the Ingredient Solutions and Distillery Products segments, partially offset by the increase in the previously described SG&A expenses.

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 ended June 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 ended June 30, 2020 increased to $11,338 from $10,874 for quarter ended June 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.

Operating income, quarter versus quarter Operating Income Change

Operating income for quarter ended March 31, 2019

Operating income for quarter ended June 30, 2019

Increase in gross profit - Ingredient Solutions segment (a)

1,681 15.5 pp (b)

Increase in gross profit - Distillery Products segment (a)

Decrease in gross profit - Distillery Products segment (a)

(501) (4.6) pp

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(716) (6.6) pp

Operating income for quarter ended March 31, 2020

Operating income for quarter ended June 30, 2020

$ 11,338 4.3 %

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(b) Percentage points (“pp”).

Income tax expense - Income tax expense for quarter ended March 31, 2020 was $3,224, for an effective tax rate of 24.7 percent.

Income tax benefit for the quarter ended March 31, 2019, was $1,459, for an effective tax rate of (17.7) percent.

The increase, quarter versus quarter, was primarily due to the tax impact of vested share-based awards and increase in Income before income taxes.

Earnings per share (“EPS”) - EPS was $0.57 for both quarters ended March 31, 2020 and 2019.

Income tax expense - Income tax expense for quarter ended June 30, 2020 was $2,550, for an effective tax rate of 23.1 percent.

Income tax expense for the quarter ended June 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 $0.50 for quarter ended June 30, 2020, compared to $0.46 for quarter ended June 30, 2019.

The change in EPS, quarter versus quarter, was primarily due to an increase in operations, offset by a change in income tax expense as previously described.

Change in basic and diluted EPS, quarter versus quarter Basic and Diluted EPS Change

Basic and diluted EPS for quarter ended March 31, 2019

Basic and diluted EPS for quarter ended June 30, 2019

Increase in operations (a)

0.02 4.3 pp (b)

Change in income tax 0.01 2.2 pp

Decrease in weighted average shares outstanding

Basic and diluted EPS for quarter ended June 30, 2020

(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 ended June 30, 2020 and 2019:

Year to Date Ended June 30,

2020 2019 2020 v.

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 ended June 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).

Gross profit - Gross profit for year to date ended June 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.

SG&A expenses - SG&A expenses for year to date ended June 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 ended June 30, 2020, increased to $25,046 from $19,387 for year to date period ended June 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

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 June 30, 2020

$ 25,046 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 year to date Basic and Diluted EPS Change

Basic and diluted EPS for year to date ended June 30, 2019

Increase in operations (a)

0.38 36.9 pp(b)

Decrease in weighted average shares outstanding

Change in interest expense, net (a)

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Change in share-based compensation (0.21) (20.4) pp

Change in income tax (0.12) (21.1) pp

Basic and diluted EPS for quarter ended March 31, 2020

Change in effective tax rate (excluding above tax item) (0.11) (10.7) pp

Basic and diluted EPS for year to date ended June 30, 2020

(a) Item is net of tax based on the effective tax rate for the base year (2019).

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Distillery Products

The following tables show selected financial information for the Distillery Products segment for the quarters ended March 31, 2020 and 2019.

The following tables show selected financial information for the Distillery Products segment for the quarters ended June 30, 2020 and 2019.

DISTILLERY PRODUCTS SALES

Quarter Ended March 31, Quarter versus Quarter Sales Change Increase/(Decrease)

Quarter Ended June 30, Quarter versus Quarter Sales Change Increase/(Decrease)

2020 2019 $ Change % Change

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Other Financial Information

Quarter Ended March 31, Quarter versus Quarter Increase / (Decrease)

Quarter Ended June 30, Quarter versus Quarter Increase / (Decrease)

2020 2019 $ Change % Change

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(d) Percentage points (“pp”).

Total sales of Distillery Products for the quarter ended March 31, 2020, increased by $5,425, or 7.3 percent, compared to the prior year quarter.

Sales of brown goods within premium beverage alcohol, industrial alcohol, warehouse services, and fuel grade alcohol increased, while sales of white goods within premium beverage alcohol and distillers feed and related co-products decreased compared to the prior year quarter.

The increase in sales of brown goods, industrial alcohol and fuel grade alcohol was driven by higher sales volume, partially offset by lower average selling price.

The decrease in sales of white goods and distillers feed and related co-products was driven by a decrease in sales volume, partially offset by favorable average selling prices.

Gross profit increased quarter versus quarter by $3,010, or 19.8 percent.

Gross margin for the quarter ended March 31, 2020, increased to 22.8 percent from 20.4 percent for the prior year quarter.

The increase in gross profit was primarily due to higher sales volumes on brown goods partially offset by lower average selling price.

Gross profit was also higher due to decreased input costs of white goods, partially offset by lower gross profits on distillers feed and related co-products and fuel grade alcohol.

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.

The following tables show selected financial information for the Distillery Products segment for the year to date ended June 30, 2020 and 2019.

DISTILLERY PRODUCTS SALES

Year to Date Ended June 30, Year to Date versus Year to Date

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:

Net Price/Mix (c)

Premium beverage alcohol 2.6% 3.2% (0.6)%

Other Financial Information

Year to Date Ended June 30, Year to Date versus Year to Date Increase / (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.

Ingredient Solutions

The following tables show selected financial information for the Ingredient Solutions segment for the quarter ended March 31, 2020 and 2019.

The following tables show selected financial information for the Ingredient Solutions segment for the quarter ended June 30, 2020 and 2019.

INGREDIENT SOLUTIONS SALES

Quarter Ended March 31, Quarter versus Quarter Sales Change Increase / (Decrease)

Quarter Ended June 30, Quarter versus Quarter Sales Change Increase / (Decrease)

2020 2019 $ Change % Change

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Other Financial Information

Quarter Ended March 31, Quarter versus Quarter Increase / (Decrease)

Quarter Ended June 30, Quarter versus Quarter Increase / (Decrease)

2020 2019 $ Change % Change

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(d) Percentage points (“pp”).

Total Ingredient Solutions sales for quarter ended March 31, 2020, increased by $4,561, or 31.4 percent, compared to the prior year quarter.

Quarter versus quarter, this increase was driven by higher sales of specialty wheat starches and proteins, slightly 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, partially offset by favorable average selling price.

Commodity wheat proteins decreased due to a decreased sales volume.

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 March 31, 2020, increased to 26.0 percent from 9.8 percent for the prior year quarter.

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.

The following tables show selected financial information for the Ingredient Solutions segment for the year to date June 30, 2020 and 2019.

INGREDIENT SOLUTIONS SALES

Year to Date Ended June 30, Year to Date versus Year to Date Sales 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:

Net Price/Mix (c)

Total Ingredient Solutions 17.6% 2.8% 14.8%

Other Financial Information

Year to Date Ended June 30, Year to Date versus Year to Date Increase / (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).

Production costs were also down quarter versus quarter, due to decreased input costs and the absence of flood related costs.

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.

CASH FLOW, FINANCIAL CONDITION AND LIQUIDITY

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Cash Flow Summary

Quarter Ended March 31, Changes, quarter versus quarter Increase / (Decrease)

Cash provided by (used in) operating activities $ 542 $ (3,789) $ 4,331

Year to Date Ended June 30, Changes, quarter versus quarter Increase / (Decrease)

Cash provided by operating activities $ 5,986 $ 3,070 $ 2,916

Cash used in investing activities (12,407) (7,369) (5,038)

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Increase (decrease) in cash and cash equivalents $ 8,436 $ (2,863) $ 11,299

Cash increased $39,350 in quarter ended March 31, 2020, compared to a decrease of $5,025 in quarter ended March 31, 2019, for a net increase in cash of $44,375, period versus period.

Cash increased $8,436 in year to date ended June 30, 2020, compared to a decrease of $2,863 in year to date ended June 30, 2019, for a net increase in cash of $11,299, period versus period.

Operating Activities.

Cash provided by operating activities for quarter ended March 31, 2020 was $542.

The cash provided by operating activities during the quarter ended March 31, 2020 resulted primarily from net income of $9,842, adjustments for non-cash or non-operating charges of $4,356 including depreciation and amortization, and share-based compensation, partially offset by uses of cash due to changes in operating assets and liabilities of $13,656.

The primary drivers of the changes in operating assets and liabilities were $11,453 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, $5,649 use of cash related to an increase in inventories, primarily barreled distillate, and $2,339 use of cash related to an increase in prepaid expenses.

These uses of cash were partially offset by $3,100 cash provided by income taxes payable (refundable) and $1,635 cash provided by accounts payable related to the timing of cash disbursements.

Cash used in operating activities for quarter ended March 31, 2019 was $3,789.

The cash used in operating activities during the quarter ended March 31, 2019 resulted primarily from uses of cash due to changes in operating assets and liabilities of $17,451, partially offset by net income of $9,720 and adjustments for non-cash or non-operating charges of $3,942, including depreciation and amortization and share-based compensation.

The primary drivers of the changes in operating assets and liabilities were $5,088 use of cash related to an increase in accounts receivables, net due to timing of customer payments, $3,976 use of cash related to a decline in accounts payable related to the timing of cash disbursements, $3,140 use of cash related to a decline in accrued expenses and $2,561 use of cash related to an increase in inventories, primarily barreled distillate.

Cash provided by operating activities for year to date ended June 30, 2020 was $5,986.

The cash provided by operating activities during the year to date ended June 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 until July 15, 2020 in accordance with the Coronavirus Aid, Relief, and Economic Security Act .

Cash provided by operating activities for year to date ended June 30, 2019 was $3,070.

The cash provided by operating activities during the year to date ended June 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 quarter ended March 31, 2020 was $8,189, which resulted from an increase in additions to property, plant and equipment of $5,645 (see Capital Spending) and increase related to the acquisition of a business of $2,750, partially offset by proceeds from sale of property of $366.

Cash used in investing activities for the quarter ended March 31, 2019 was $4,907, which primarily resulted from an increase in additions to property, plant and equipment of $3,741 (see Capital Spending).

Cash used in investing activities for year to date ended June 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 ended June 30, 2019 was $7,369, which primarily resulted from an increase in additions to property, plant and equipment of $6,192 (see Capital Spending).

Capital Spending.

We manage capital spending to support our business growth plans.

Investments in property, plant and equipment were $5,645 and $3,741 for quarter ended March 31, 2020 and 2019, respectively.

Adjusted for the change in capital expenditures in accounts payable for quarter ended March 31, 2020 and 2019, of $(2,690) and $(1,989), respectively, total capital expenditures were $2,955 and $1,752, respectively.

Investments in property, plant and equipment were $10,177 and $6,192 for year to date ended June 30, 2020 and 2019, respectively.

Adjusted for the change in capital expenditures in accounts payable for year to date ended June 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 of March 31, 2020, we had incurred approximately $49,700 of the total investment and expect our total warehouse expansion project investment to be approximately $49,800.

The estimated project completion date is by the end of calendar year 2020.

As of June 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 quarter ended March 31, 2020 was $46,997, primarily due to net proceeds from debt of $54,600 (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 $2,060 (see Dividends and Dividend Equivalents).

Cash provided by financing activities for quarter to date ended March 31, 2019 was $3,671, primarily due to net proceeds from debt of $10,930 (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 $1,714 (see Dividends and Dividend Equivalents).

Cash provided by financing activities for year to date ended June 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 ended June 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 March 31, 2020, of which we withheld and purchased for treasury 10,044 shares valued at $342 to cover payment of associated withholding taxes.

233,841 RSUs vested and converted to common shares for employees during year to date ended March 31, 2019, of which we withheld and purchased for treasury 76,996 shares valued at $5,467 to cover payment of associated withholding taxes.

30,388 RSUs vested and converted to common shares for employees during year to date ended June 30, 2020, of which we withheld and purchased for treasury 10,044 shares valued at $342 to cover payment of associated withholding taxes.

233,854 RSUs vested and converted to common shares for employees during year to date ended June 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.

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This share repurchase program may be modified, suspended, or terminated by us at any time without prior notice.

During the quarter ended March 31, 2020, 159,104 shares were repurchased under the program for $4,053.

During the year to date ended June 30, 2020, 159,104 shares were repurchased under the program for $4,053.

Dividends and Dividend Equivalents

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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

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.

On April 28, 2020, our Board of Directors declared a quarterly dividend payable to stockholders of record as of May 22, 2020, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of May 22, 2020, of $0.12 per share and per unit, payable on June 5, 2020.

On July 28, 2020, our Board of Directors declared a quarterly dividend payable to stockholders of record as of August 21, 2020, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of August 21, 2020, of $0.12 per share and per unit, payable on September 4, 2020.

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 $94,555 (net of unamortized loan fees of $1,554) at March 31, 2020, and $41,060 (net of unamortized loan fees of $448) at December 31, 2019.

Total debt was $64,533 (net of unamortized loan fees of $1,477) at June 30, 2020, and $41,060 (net of unamortized loan fees of $448) at December 31, 2019.

Financial Condition and Liquidity.

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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 March 31, 2020, we met those covenants and restrictions.

At March 31, 2020, our current assets exceeded our current liabilities by $200,951, largely due to our inventories, at cost, of $142,774.

At March 31, 2020, our cash balance was $42,659 and we have used our Credit Agreement and Note Purchase Agreement for liquidity purposes, with $245,000 remaining for additional borrowings.

Under our Credit Agreement and Note Purchase Agreement, we must meet certain financial covenants and restrictions, and at June 30, 2020, we met those covenants and restrictions.

At June 30, 2020, our current assets exceeded our current liabilities by $177,843, largely due to our inventories, at cost, of $147,108.

At June 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.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis