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Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended November 30, 2020

or

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                 to                

Commission File Number 000-22496

 

SCHNITZER STEEL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

Oregon

 

93-0341923

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

299 SW Clay Street, Suite 350, Portland, Oregon

 

97201

(Address of principal executive offices)

 

(Zip Code)

(503) 224-9900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, $1.00 par value

 

SCHN

 

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 

The registrant had 27,253,708 shares of Class A common stock, par value of $1.00 per share, and 200,000 shares of Class B common stock, par value of $1.00 per share, outstanding as of January 4, 2021.

 

 

 

 


Table of Contents

 

 

SCHNITZER STEEL INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

PAGE

FORWARD-LOOKING STATEMENTS

3

 

 

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

4

 

 

Unaudited Condensed Consolidated Balance Sheets as of November 30, 2020 and August 31, 2020

4

 

 

Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended November 30, 2020 and 2019

5

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended November 30, 2020 and 2019

6

 

 

Unaudited Condensed Consolidated Statements of Equity for the Three Months Ended November 30, 2020 and 2019

7

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended November 30, 2020 and 2019

8

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

10

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

31

 

 

Item 4. Controls and Procedures

32

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

33

 

 

Item 1A. Risk Factors

33

 

 

Item 5. Other Information

33

 

 

Item 6. Exhibits

34

 

 

SIGNATURES

35

 

 

 

 


Table of Contents

 

 

 

FORWARD-LOOKING STATEMENTS

Statements and information included in this Quarterly Report on Form 10-Q by Schnitzer Steel Industries, Inc. that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Except as noted herein or as the context may otherwise require, all references to “we,” “our,” “us,” “the Company” and “SSI” refer to Schnitzer Steel Industries, Inc. and its consolidated subsidiaries.

Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding future events or our expectations, intentions, beliefs and strategies regarding the future, which may include statements regarding the impact of pandemics, epidemics or other public health emergencies, such as the coronavirus disease 2019 (“COVID-19”) pandemic; the Company’s outlook, growth initiatives or expected results or objectives, including pricing, margins, sales volumes and profitability; liquidity positions; our ability to generate cash from continuing operations; trends, cyclicality and changes in the markets we sell into; strategic direction or goals; targets; changes to manufacturing and production processes; the realization of deferred tax assets; planned capital expenditures; the cost of and the status of any agreements or actions related to our compliance with environmental and other laws; expected tax rates, deductions and credits; the impact of sanctions and tariffs, quotas and other trade actions and import restrictions; the potential impact of adopting new accounting pronouncements; obligations under our retirement plans; benefits, savings or additional costs from business realignment, cost containment and productivity improvement programs; and the adequacy of accruals.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as “outlook,” “target,” “aim,” “believes,” “expects,” “anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “may,” “will,” “should,” “could,” “opinions,” “forecasts,” “projects,” “plans,” “future,” “forward,” “potential,” “probable,” and similar expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

We may make other forward-looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases, presentations and on public conference calls. All forward-looking statements we make are based on information available to us at the time the statements are made, and we assume no obligation to update any forward-looking statements, except as may be required by law. Our business is subject to the effects of changes in domestic and global economic conditions and a number of other risks and uncertainties that could cause actual results to differ materially from those included in, or implied by, such forward-looking statements. Some of these risks and uncertainties are discussed in “Item 1A. Risk Factors” of Part I of our most recent Annual Report on Form 10-K, as supplemented by our subsequently filed Quarterly Reports on Form 10-Q. Examples of these risks include: the impact of pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic; potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the cyclicality and impact of general economic conditions; changing conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions; volatile supply and demand conditions affecting prices and volumes in the markets for raw materials and other inputs we purchase; significant decreases in scrap metal prices; imbalances in supply and demand conditions in the global steel industry; the impact of goodwill impairment charges; the impact of long-lived asset and equity investment impairment charges; failure to realize or delays in realizing expected benefits from investments in processing and manufacturing technology improvements; inability to achieve or sustain the benefits from productivity, cost savings and restructuring initiatives; inability to renew facility leases; difficulties associated with acquisitions and integration of acquired businesses; customer fulfillment of their contractual obligations; increases in the relative value of the U.S. dollar; the impact of foreign currency fluctuations; potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under the agreement governing our bank credit facilities; the impact of consolidation in the steel industry; reliance on third party shipping companies, including with respect to freight rates and the availability of transportation; the impact of equipment upgrades, equipment failures and facility damage on production; product liability claims; the impact of legal proceedings and legal compliance; the adverse impact of climate change; the impact of not realizing deferred tax assets; the impact of tax increases and changes in tax rules; the impact of property tax increases or property tax rate changes; the impact of one or more cybersecurity incidents; environmental compliance costs and potential environmental liabilities; inability to obtain or renew business licenses and permits; compliance with climate change and greenhouse gas emission laws and regulations; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.

 

 

3


Table of Contents

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

 

 

 

November 30, 2020

 

 

August 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,258

 

 

$

17,887

 

Accounts receivable, net of allowance for credit losses of $1,602

   and $1,593

 

 

166,215

 

 

 

139,147

 

Inventories

 

 

185,347

 

 

 

157,269

 

Refundable income taxes

 

 

13,398

 

 

 

18,253

 

Prepaid expenses and other current assets

 

 

28,812

 

 

 

30,075

 

Total current assets

 

 

401,030

 

 

 

362,631

 

Property, plant and equipment, net of accumulated depreciation of $823,092 and $811,623

 

 

495,376

 

 

 

487,004

 

Operating lease right-of-use assets

 

 

140,320

 

 

 

140,584

 

Investments in joint ventures

 

 

10,930

 

 

 

10,057

 

Goodwill

 

 

169,686

 

 

 

169,627

 

Intangibles, net of accumulated amortization of $3,392 and $3,528

 

 

4,434

 

 

 

4,585

 

Deferred income taxes

 

 

26,083

 

 

 

27,152

 

Other assets

 

 

29,674

 

 

 

28,287

 

Total assets

 

$

1,277,533

 

 

$

1,229,927

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

2,171

 

 

$

2,184

 

Accounts payable

 

 

116,507

 

 

 

106,676

 

Accrued payroll and related liabilities

 

 

24,871

 

 

 

41,436

 

Environmental liabilities

 

 

7,620

 

 

 

6,302

 

Operating lease liabilities

 

 

19,901

 

 

 

19,760

 

Other accrued liabilities

 

 

42,350

 

 

 

47,306

 

Total current liabilities

 

 

213,420

 

 

 

223,664

 

Deferred income taxes

 

 

41,840

 

 

 

38,292

 

Long-term debt, net of current maturities

 

 

141,172

 

 

 

102,235

 

Environmental liabilities, net of current portion

 

 

47,105

 

 

 

47,162

 

Operating lease liabilities, net of current maturities

 

 

124,225

 

 

 

125,001

 

Other long-term liabilities

 

 

21,223

 

 

 

13,137

 

Total liabilities

 

 

588,985

 

 

 

549,491

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock – 20,000 shares $1.00 par value authorized, none issued

 

 

 

 

 

 

Class A common stock – 75,000 shares $1.00 par value authorized,

   27,254 and 26,899 shares issued and outstanding

 

 

27,254

 

 

 

26,899

 

Class B common stock – 25,000 shares $1.00 par value authorized,

   200 and 200 shares issued and outstanding

 

 

200

 

 

 

200

 

Additional paid-in capital

 

 

35,310

 

 

 

36,616

 

Retained earnings

 

 

658,710

 

 

 

649,863

 

Accumulated other comprehensive loss

 

 

(36,892

)

 

 

(36,871

)

Total SSI shareholders’ equity

 

 

684,582

 

 

 

676,707

 

Noncontrolling interests

 

 

3,966

 

 

 

3,729

 

Total equity

 

 

688,548

 

 

 

680,436

 

Total liabilities and equity

 

$

1,277,533

 

 

$

1,229,927

 

 

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statement are an integral part of these statements.

 

 

4


Table of Contents

 

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

 

 

 

Three Months Ended November 30,

 

 

 

2020

 

 

2019

 

Revenues

 

$

492,107

 

 

$

405,584

 

Operating expense:

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

420,094

 

 

 

364,760

 

Selling, general and administrative

 

 

49,906

 

 

 

46,774

 

(Income) from joint ventures

 

 

(727

)

 

 

(199

)

Asset impairment charges

 

 

 

 

 

1,692

 

Restructuring charges and other exit-related activities

 

 

64

 

 

 

467

 

Operating income (loss)

 

 

22,770

 

 

 

(7,910

)

Interest expense

 

 

(1,780

)

 

 

(1,423

)

Other (loss) income, net

 

 

(165

)

 

 

206

 

Income (loss) from continuing operations before income taxes

 

 

20,825

 

 

 

(9,127

)

Income tax (expense) benefit

 

 

(5,719

)

 

 

2,534

 

Income (loss) from continuing operations

 

 

15,106

 

 

 

(6,593

)

(Loss) income from discontinued operations, net of tax

 

 

(42

)

 

 

28

 

Net income (loss)

 

 

15,064

 

 

 

(6,565

)

Net income attributable to noncontrolling interests

 

 

(960

)

 

 

(430

)

Net income (loss) attributable to SSI shareholders

 

$

14,104

 

 

$

(6,995

)

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to SSI shareholders:

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

Income (loss) per share from continuing operations

 

$

0.51

 

 

$

(0.26

)

Net income (loss) per share

 

$

0.51

 

 

$

(0.25

)

Diluted:

 

 

 

 

 

 

 

 

Income (loss) per share from continuing operations

 

$

0.50

 

 

$

(0.26

)

Net income (loss) per share

 

$

0.50

 

 

$

(0.25

)

Weighted average number of common shares:

 

 

 

 

 

 

 

 

Basic

 

 

27,807

 

 

 

27,515

 

Diluted

 

 

28,485

 

 

 

27,515

 

 

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

5


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SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

(Currency - U.S. Dollar)

 

 

 

Three Months Ended November 30,

 

 

 

2020

 

 

2019

 

Net income (loss)

 

$

15,064

 

 

$

(6,565

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

239

 

 

 

211

 

Pension obligations, net

 

 

(260

)

 

 

27

 

Total other comprehensive (loss) income, net of tax

 

 

(21

)

 

 

238

 

Comprehensive income (loss)

 

 

15,043

 

 

 

(6,327

)

Less comprehensive income attributable to noncontrolling interests

 

 

(960

)

 

 

(430

)

Comprehensive income (loss) attributable to SSI shareholders

 

$

14,083

 

 

$

(6,757

)

 

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

 

6


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SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Class B

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total SSI

 

 

 

 

 

 

 

 

 

Three Months Ended November 30, 2019

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Comprehensive

Loss

 

 

Shareholders'

Equity

 

 

Noncontrolling

Interests

 

 

Total

Equity

 

Balance as of August 31, 2019

 

 

26,464

 

 

$

26,464

 

 

 

200

 

 

$

200

 

 

$

33,700

 

 

$

675,363

 

 

$

(38,763

)

 

$

696,964

 

 

$

4,332

 

 

$

701,296

 

Cumulative effect on adoption of new

accounting guidance for leases, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(463

)

 

 

 

 

 

(463

)

 

 

 

 

 

(463

)

Balance as of September 1, 2019

 

 

26,464

 

 

 

26,464

 

 

 

200

 

 

 

200

 

 

 

33,700

 

 

 

674,900

 

 

 

(38,763

)

 

 

696,501

 

 

 

4,332

 

 

 

700,833

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,995

)

 

 

 

 

 

(6,995

)

 

 

430

 

 

 

(6,565

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

238

 

 

 

238

 

 

 

 

 

 

238

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(579

)

 

 

(579

)

Restricted stock withheld for taxes

 

 

(274

)

 

 

(274

)

 

 

 

 

 

 

 

 

(5,571

)

 

 

 

 

 

 

 

 

(5,845

)

 

 

 

 

 

(5,845

)

Issuance of restricted stock

 

 

753

 

 

 

753

 

 

 

 

 

 

 

 

 

(753

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,152

 

 

 

 

 

 

 

 

 

2,152

 

 

 

 

 

 

2,152

 

Dividends ($0.1875 per common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,198

)

 

 

 

 

 

(5,198

)

 

 

 

 

 

(5,198

)

Balance as of November 30, 2019

 

 

26,943

 

 

$

26,943

 

 

 

200

 

 

$

200

 

 

$

29,528

 

 

$

662,707

 

 

$

(38,525

)

 

$

680,853

 

 

$

4,183

 

 

$

685,036

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Class B

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total SSI

 

 

 

 

 

 

 

 

 

Three Months Ended November 30, 2020

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Comprehensive

Loss

 

 

Shareholders'

Equity

 

 

Noncontrolling

Interests

 

 

Total

Equity

 

Balance as of September 1, 2020

 

 

26,899

 

 

$

26,899

 

 

 

200

 

 

$

200

 

 

$

36,616

 

 

$

649,863

 

 

$

(36,871

)

 

$

676,707

 

 

$

3,729

 

 

$

680,436

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,104

 

 

 

 

 

 

14,104

 

 

 

960

 

 

 

15,064

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

(21

)

 

 

 

 

 

(21

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(723

)

 

 

(723

)

Restricted stock withheld for taxes

 

 

(188

)

 

 

(188

)

 

 

 

 

 

 

 

 

(3,782

)

 

 

 

 

 

 

 

 

(3,970

)

 

 

 

 

 

(3,970

)

Issuance of restricted stock

 

 

543

 

 

 

543

 

 

 

 

 

 

 

 

 

(543

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,019

 

 

 

 

 

 

 

 

 

3,019

 

 

 

 

 

 

3,019

 

Dividends ($0.1875 per common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,257

)

 

 

 

 

 

(5,257

)

 

 

 

 

 

(5,257

)

Balance as of November 30, 2020

 

 

27,254

 

 

$

27,254

 

 

 

200

 

 

$

200

 

 

$

35,310

 

 

$

658,710

 

 

$

(36,892

)

 

$

684,582

 

 

$

3,966

 

 

$

688,548

 

 

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

 

7


Table of Contents

 

 

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

(Currency - U.S. Dollar)

 

 

 

Three Months Ended November 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

15,064

 

 

$

(6,565

)

Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Asset impairment charges

 

 

 

 

 

1,692

 

Exit-related asset impairments

 

 

 

 

 

117

 

Depreciation and amortization

 

 

14,826

 

 

 

14,087

 

Deferred income taxes

 

 

4,770

 

 

 

(2,456

)

Undistributed equity in earnings of joint ventures

 

 

(727

)

 

 

(199

)

Share-based compensation expense

 

 

2,984

 

 

 

2,152

 

Gain on the disposal of assets, net

 

 

(61

)

 

 

(386

)

Unrealized foreign exchange loss (gain), net

 

 

82

 

 

 

(16

)

Credit loss, net

 

 

33

 

 

 

32

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(29,116

)

 

 

28,202

 

Inventories

 

 

(25,928

)

 

 

11,870

 

Income taxes

 

 

5,324

 

 

 

(227

)

Prepaid expenses and other current assets

 

 

738

 

 

 

(356

)

Other long-term assets

 

 

(737

)

 

 

(57

)

Operating lease assets and liabilities

 

 

(375

)

 

 

105

 

Accounts payable

 

 

19,015

 

 

 

(28,953

)

Accrued payroll and related liabilities

 

 

(12,529

)

 

 

(11,159

)

Other accrued liabilities

 

 

(5,204

)

 

 

3,771

 

Environmental liabilities

 

 

1,252

 

 

 

(553

)

Other long-term liabilities

 

 

3,158

 

 

 

32

 

Net cash (used in) provided by operating activities

 

 

(7,431

)

 

 

11,133

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(31,827

)

 

 

(23,973

)

Proceeds from sale of assets

 

 

80

 

 

 

2

 

Net cash used in investing activities