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MarketScreener Homepage  >  Equities  >  Nyse  >  Sensient Technologies Corporation    SXT

SENSIENT TECHNOLOGIES CORPORATION

(SXT)
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SENSIENT TECHNOLOGIES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/06/2020 | 12:03pm EST

FORWARD-LOOKING STATEMENTS


This document contains forward-looking statements that reflect management's
current assumptions and estimates of future economic circumstances, industry
conditions, Company performance, and financial results. Forward-looking
statements include statements in the future tense, statements referring to any
period after June 30, 2020, and statements including the terms "expect,"
"believe," "anticipate," and other similar terms that express expectations as to
future events or conditions. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for such forward-looking statements. Such
forward-looking statements are not guarantees of future performance and involve
known and unknown risks, uncertainties, and other factors that could cause
actual events to differ materially from those expressed in those statements. A
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results. These factors and assumptions
include the impact and uncertainty created by the ongoing COVID-19 pandemic,
including, but not limited to, its effects on our employees, facilities,
customers and suppliers, the availability and cost of raw materials and other
supplies, the availability of logistics and transportation, governmental
regulations and restrictions, and general economic conditions; the pace and
nature of new product introductions by the Company and the Company's customers;
the Company's ability to anticipate and respond to changing consumer preferences
and changing technologies; the Company's ability to successfully implement its
growth strategies; the outcome of the Company's various productivity-improvement
and cost-reduction efforts and acquisition and divestiture activities; the
success of the Company's efforts to explore strategic alternatives for certain
non-core product lines; the effectiveness of the Company's past restructuring
activities; changes in costs of raw materials, including energy; industry,
regulatory, legal, and economic factors related to the Company's domestic and
international business; the effects of tariffs, trade barriers, and disputes;
growth in markets for products in which the Company competes; industry and
customer acceptance of price increases; actions by competitors; currency
exchange rate fluctuations; the matters discussed under Item 1A of the Company's
Annual Report on Form 10-K for the year ended December 31, 2019, as updated
below under Part II, Item 1A; and the matters discussed below under Item 2
including the critical accounting policies referenced therein. Except to the
extent required by applicable law, the Company does not undertake to publicly
update or revise its forward-looking statements even if experience or future
changes make it clear that any projected results expressed or implied therein
will not be realized.

OVERVIEW

Revenue
Revenue was $323.1 million and $339.2 million for the three months ended June
30, 2020 and 2019, respectively. Revenue was $673.8 million and $686.7 million
for the six months ended June 30, 2020 and 2019, respectively. For the three and
six months ended June 30, 2020, the impact of foreign exchange rates decreased
consolidated revenue by approximately 3% and 2%, respectively.

Gross Margin
The Company's gross margin was 31.6% and 33.0% for the three months ended June
30, 2020 and 2019, respectively. The decrease in gross margin was primarily a
result of lower Color segment volumes and the impact of a $1.7 million inventory
adjustment related to the divesting of the yogurt fruit preparations product
line. See Divestitures below for further information on the inventory
adjustment.

Gross margin was 31.8% and 33.1% for the six months ended June 30, 2020 and 2019, respectively. The decrease in gross margin was primarily a result of lower Color segment volumes, higher raw material costs primarily in natural ingredients and the impact of the divestiture and other related costs.


Selling and Administrative Expense
Selling and administrative expense as a percent of revenue was 18.6% and 19.0%
for the three months ended June 30, 2020 and 2019, respectively. Selling and
administrative expense as a percent of revenue was 20.4% and 19.0% for the six
months ended June 30, 2020 and 2019, respectively.

Selling and administrative expenses included divestiture and other related
income of $3.3 million and divestiture and other related expense of $8.4 million
for the three and six months ended June 30, 2020, respectively. The changes in
selling and administrative expense as a percent of revenue is primarily due to
the divestiture and other related costs recorded in 2020 and an increase in
performance-based compensation. The divestiture and other related activity
decreased selling and administrative expense as a percent of revenue by 100
basis points for the three months ended June 30, 2020, and the divestiture and
other related costs increased selling and administrative expense as a percent of
revenue by 120 basis points for the six months ended June 30, 2020.

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Operating Income
Operating income was $42.1 million and $47.4 million for the three months ended
June 30, 2020 and 2019, respectively. Operating margins were 13.0% and 14.0% for
the three months ended June 30, 2020 and 2019, respectively. The decrease in
operating margins is primarily due to the lower volumes in the Color segment and
higher performance-based compensation, partially offset by the divestiture and
other related income recorded in 2020, which increased operating margins by 40
basis points for the three months ended June 30, 2020. The divestiture and other
related income was primarily a result of the non-cash net gain of $8.2 million
recorded in connection with the completion of the inks sale, partially offset by
other divestiture and related costs.

Operating income was $76.7 million and $96.8 million for the six months ended
June 30, 2020 and 2019, respectively. Operating margins were 11.4% and 14.1% for
the six months ended June 30, 2020 and 2019, respectively. The decrease in
operating margins is primarily due to the lower volumes in the Color segment,
higher raw material costs, higher performance-based compensation, and the
divestiture and other related costs incurred in 2020. The divestiture and other
related costs decreased operating margins by 150 basis points for the six months
ended June 30, 2020.

Interest Expense
Interest expense was $3.6 million and $5.2 million for the three months ended
June 30, 2020 and 2019, respectively, and $7.9 million and $10.6 million for the
six months ended June 30, 2020 and 2019, respectively. The decrease in expense
was due to the decrease in the average debt outstanding and lower average
interest rates.

Income Taxes
The effective income tax rates for the three months ended June 30, 2020 and
2019, were 20.5% and 18.6%, respectively. For the six months ended June 30, 2020
and 2019, the effective income tax rates were 25.3% and 22.1%, respectively. The
effective tax rates for the three and six months ended June 30, 2020 and 2019
were both impacted by changes in estimates associated with the finalization of
prior year foreign tax items, audit settlements, a change in valuation
allowances, and the mix of foreign earnings.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief
and Economic Security Act (CARES Act). The CARES Act allows for the deferral of
income and social security tax payments, a five-year carryback for net operating
losses, changes to interest expense and business loss limitation rules, certain
new tax credits, and certain new loans and grants to businesses. The Company has
reviewed its income tax assumptions and projections in light of the CARES Act
and has determined the CARES Act does not materially impact the Company's income
tax expense or projections. During the three months ended June 30, 2020, the
Company deferred certain income and payroll tax payments of $6.1 million as
permitted by the CARES Act.

Divestitures

In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines. The Board of Directors approved the sale of the inks product line, which is within the Color segment, and the sale of the fragrances and yogurt fruit preparations product lines, which are within the Flavors & Fragrances segment.


On June 30, 2020, the Company completed the sale of its inks product line. The
Company estimates it will realize an enterprise value of approximately $14.5
million. At closing, the Company received $10.3 million of net cash, subject to
post-closing working capital and net debt adjustments, and estimates it will
realize additional value for the sale of certain assets post-closing and the
collection of retained accounts receivables. The Company recorded a non-cash net
gain of $8.2 million related to the reclassification of accumulated foreign
currency translation and related items from Accumulated Other Comprehensive Loss
to Selling and Administrative Expenses in the Consolidated Condensed Statements
of Earnings.

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In the three and six months ended June 30, 2020, the Company recorded non-cash
impairment charges of $2.4 million and $12.1 million, respectively, primarily
related to property, plant, and equipment, intangibles and allocated goodwill,
in Selling and Administrative Expenses related to the disposal group as
described in Note 2, Divestitures, to the Consolidated Condensed Financial
Statements included in this report. The charge reduced the carrying value of
certain long-lived assets to their estimated fair value. An estimate of the fair
value of these product lines less cost to sell was determined to be lower than
its carrying value. These estimates will be finalized and adjusted as necessary
upon the closing of the sales or as assumptions change. In addition, in the
three and six months ended June 30, 2020, the Company recorded non-cash charges
of $1.7 million and $1.9 million, respectively, related to inventory, in Cost of
Products Sold.

In the three and six months ended June 30, 2020, the Company also incurred $2.6
million and $4.5 million, respectively, of additional costs, primarily for
severance, environmental, and legal expenses, related to the divestitures and
other related activities.

See Note 2, Divestitures, to the Consolidated Condensed Financial Statements
included in this report for additional detail and estimated additional charges
and expenses associated with these divestitures.

COVID-19

COVID-19 continues to affect most of the world, including through widespread
illness, quarantines, factory shutdowns, and travel and transportation
restrictions. While the Company's financial position remains strong, the Company
has seen several financial and operational impacts from the pandemic as of this
filing.

For the three and six months ended June 30, 2020, demand for the Company's
products remained strong, especially in product lines that serve the food,
beverage, and pharmaceutical markets. There has been softer demand in other
product lines the Company serves, particularly in the cosmetics product line and
some product lines that supply the quick service restaurant segment due to
widespread restaurant shutdowns and quarantine orders. While COVID-19 appears to
have initially contributed to demand for food-related products and dampened
demand for personal care related products, it is difficult to quantify the
continuing and future impact of COVID-19 on demand for the Company's products.
The Company continues to believe that it will achieve its projected earnings
guidance despite the headwinds created by COVID-19.

During the first quarter of 2020, the Company had a production facility in China
and a production facility in India that were required to temporarily suspend
operations. All of the Company's production facilities are open and operating as
of this filing, but the Company continues to monitor developments and
regulations in regions where its production facilities are located. The Company
also continues to monitor supply chains and has increased inventory in certain
key raw materials, although the Company did not experience any significant
supply disruptions during the three or six months ended June 30, 2020.

As of June 30, 2020, the Company continues to be in compliance with its
financial loan covenants and does not anticipate any non-compliance in the
future. COVID-19 has not adversely impacted the Company's capital or financial
resources. Furthermore, the Company expects its forecasted cash flows from
operations and its available debt capacity will be able to meet future cash
requirements for operations, capital expenditures, contractual maturities on
long-term debt, and dividend payments.

The Company reviewed its goodwill, intangible assets, and long-lived assets for
potential impairment indicators as of June 30, 2020, and except for the
impairments associated with the product lines divested or to be divested noted
above, no indicators of impairment were identified. The Company also reviewed
its trade accounts receivables for potential collection issues and did not
identify any significant concerns. The Company will continue to monitor cash
collections and review trade receivable aging to identify any deterioration in
quality.

For the six months ended June 30, 2020, the Company estimates that the
incremental expenses related to its COVID-19 response are less than $2 million.
These incremental expenses are in addition to any profit impact related to lower
sales in certain product lines where consumer demand has been negatively
impacted by COVID-19. All of the Company's manufacturing plants are currently in
operation and have been designated as part of the critical infrastructure in the
countries in which they operate.

In October 2019, the Company announced its intent to divest its inks, fragrances
(excluding its essential oils product line), and yogurt fruit preparations
product lines. In June 2020, the Company completed the sale of its inks product
line. While the sales and exit activities of the fragrances and yogurt fruit
preparations product lines are still anticipated to be completed, travel and
transportation restrictions have slowed down various activities related to the
divestitures.

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The Company continues to believe its internal controls over financial reporting
and its disclosure controls and procedures are effective to ensure their design
and operation continue to be effective as some employees perform tasks from
alternative work locations. Internal audit continues to perform their audit
procedures as planned, remotely in many cases.

NON-GAAP FINANCIAL MEASURES


Within the following tables, the Company reports certain non-GAAP financial
measures, including: (1) adjusted revenue, adjusted operating income, adjusted
net earnings, and adjusted diluted earnings per share, which exclude the results
of the product lines divested or to be divested and the divestiture and other
related costs or income, and (2) percentage changes in revenue, operating
income, and diluted earnings per share on an adjusted local currency basis,
which eliminate the effects that result from translating its international
operations into U.S. dollars, the results of product lines divested or to be
divested, and the divestiture and other related costs or income.

The Company has included each of these non-GAAP measures in order to provide
additional information regarding our underlying operating results and comparable
year-over-year performance. Such information is supplemental to information
presented in accordance with GAAP and is not intended to represent a
presentation in accordance with GAAP. These non-GAAP measures should not be
considered in isolation. Rather, they should be considered together with GAAP
measures and the rest of the information included in this report. Management
internally reviews each of these non-GAAP measures to evaluate performance on a
comparative period-to-period basis and to gain additional insight into
underlying operating and performance trends, and the Company believes the
information can be beneficial to investors for the same purposes. These non-GAAP
measures may not be comparable to similarly titled measures used by other
companies.

                              Three Months Ended June 30,                  Six Months Ended June 30,
(In thousands, except      2020          2019         % Change         2020          2019         % Change
per share amounts)
Revenue (GAAP)          $  323,090$ 339,186           (4.7 %)   $ 673,767$ 686,699           (1.9 %)
Revenue of the
product lines
divested or to be
divested                   (28,217 )     (36,356 )                     (64,802 )     (75,377 )
Adjusted revenue        $  294,873$ 302,830           (2.6 %)   $ 608,965$ 611,322           (0.4 %)

Operating Income
(GAAP)                  $   42,125$  47,368          (11.1 %)   $  76,686$  96,788          (20.8 %)
Divestiture & other
related costs - Cost
of products sold             1,749             -                         1,939             -
Divestiture & other
related costs
(income) - Selling
and administrative
expenses                    (3,276 )           -                         8,377             -
Operating income of
the product lines
divested or to be
divested                      (331 )        (345 )                      (1,716 )        (377 )
Adjusted operating
income                  $   40,267$  47,023          (14.4 %)   $  85,286$  96,411          (11.5 %)

Net Earnings (GAAP)     $   30,620$  34,331          (10.8 %)   $  51,393$  67,138          (23.5 %)
Divestiture & other
related costs
(income), before tax        (1,527 )           -                        10,316             -
Tax impact of
divestiture & other
related costs                  509             -                          (425 )           -
Net earnings of the
product lines
divested or to be
divested, before tax          (331 )        (345 )                      (1,716 )        (377 )
Tax impact of the
product lines
divested or to be
divested                       203           105                           500           116
Adjusted net earnings   $   29,474$  34,091          (13.5 %)   $  60,068$  66,877          (10.2 %)

Diluted earnings per
share (GAAP)            $     0.72$    0.81          (11.1 %)   $    1.21$    1.59          (23.9 %)
Divestiture & other
related costs
(income), net of tax         (0.02 )           -                          0.23             -
Results of operations
of the product lines
divested or to be
divested, net of tax             -         (0.01 )                       (0.03 )       (0.01 )
Adjusted diluted
earnings per share      $     0.70$    0.81          (13.6 %)   $    1.42$    1.58          (10.1 %)



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The following table summarizes the percentage change for the results of the three and six months ended June 30, 2020, compared to the results for the three and six months ended June 30, 2019, in the respective financial measures.


                                        Three Months Ended June 30, 2020                              Six Months Ended June 30, 2020
                                                           Product                                                      Product
                                                            Lines                                                        Lines
                                           Foreign         Divested        Adjusted                     Foreign         Divested        Adjusted
                                           Exchange        or to be         Local                       Exchange        or to be         Local
Revenue                       Total         Rates          Divested        Currency        Total         Rates          Divested        Currency
Flavors & Fragrances             1.9 %          (2.0 %)         (1.8 %)          5.7 %        1.8 %          (1.5 %)         (1.3 %)          4.6 %
Color                          (12.7 %)         (4.4 %)         (3.2 %)         (5.1 %)      (6.4 %)         (3.3 %)         (2.0 %)         (1.1 %)
Asia Pacific                    (3.9 %)         (2.5 %)          0.0 %          (1.4 %)       1.4 %          (2.1 %)          0.0 %           3.5 %
Total Revenue                   (4.7 %)         (2.9 %)         (1.8 %)          0.0 %       (1.9 %)         (2.3 %)         (1.2 %)          1.6 %

Operating Income
Flavors & Fragrances            13.5 %          (1.3 %)          6.8 %           8.0 %        1.0 %          (1.1 %)          6.2 %          (4.1 %)
Color                          (20.1 %)         (3.7 %)         (4.5 %)        (11.9 %)     (10.6 %)         (3.0 %)         (2.1 %)         (5.5 %)
Asia Pacific                    15.4 %          (0.9 %)         (0.1 %)         16.4 %       17.7 %           0.0 %          (0.1 %)         17.8 %
Corporate & Other               62.6 %           0.0 %         (32.1 %)         94.7 %      123.4 %           0.0 %          80.1 %          43.3 %
Total Operating Income         (11.1 %)         (2.9 %)          3.6 %         (11.8 %)     (20.8 %)         (2.3 %)         (9.1 %)         (9.4 %)
Diluted Earnings per Share     (11.1 %)         (2.5 %)          1.3 %          (9.9 %)     (23.9 %)         (2.5 %)        (13.8 %)         (7.6 %)



SEGMENT INFORMATION

The Company determines its operating segments based on information utilized by
its chief operating decision maker to allocate resources and assess performance.
The Company evaluates performance based on operating income before divestiture
and other related costs and income, restructuring and other charges, interest
expense, and income taxes (segment operating income). There were no
restructuring and other charges incurred in either of the first three or six
months of 2020 or 2019.

Flavors & Fragrances
Flavors & Fragrances segment revenue was $183.6 million and $180.1 million for
the three months ended June 30, 2020 and 2019, respectively, an increase of
approximately 2%. Foreign exchange rates decreased segment revenue by
approximately 2%. The increase was a result of higher revenue in Natural
Ingredients and Flavors, Extracts & Flavor Ingredients, partially offset by
lower revenue in Yogurt Fruit Preparations. The higher revenue in Natural
Ingredients was primarily due to higher volumes and selling prices. The higher
revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher
volumes and selling prices, partially offset by the unfavorable impact of
exchange rates. The lower revenue in Yogurt Fruit Preparations was primarily due
to lower volumes.

Flavors & Fragrances segment revenue was $370.1 million and $363.7 million for
the six months ended June 30, 2020 and 2019, respectively, an increase of
approximately 2%. Foreign exchange rates decreased segment revenue by
approximately 2%. The increase was a result of higher revenue in Natural
Ingredients, partially offset by lower revenue in Yogurt Fruit Preparations and
Fragrances. The higher revenue in Natural Ingredients was primarily due to
higher volumes and selling prices. The lower revenue in Yogurt Fruit
Preparations was primarily due to lower volumes. The lower revenue in Fragrances
was primarily due to lower selling prices and the unfavorable impact of exchange
rates, partially offset by higher volumes.

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Flavors & Fragrances segment operating income was $22.8 million and $20.1
million for the three months ended June 30, 2020 and 2019, respectively, an
increase of approximately 14%. Foreign exchange rates decreased segment
operating income by approximately 1%. The higher segment operating income was
primarily a result of higher operating income in Flavors, Extracts & Flavor
Ingredients and Fragrances, partially offset by lower operating profit in
Natural Ingredients. The higher segment operating income in Flavors, Extracts &
Flavor Ingredients was primarily due to lower manufacturing and other costs and
higher selling prices. The higher segment operating income in Fragrances was
primarily due to favorable volumes and product mix and lower raw material costs,
partially offset by lower selling prices. The lower segment operating income in
Natural Ingredients was primarily due to higher raw material costs. Segment
operating income as a percent of revenue was 12.4% in the current quarter
compared to 11.1% in the prior year's comparable quarter.

Flavors & Fragrances segment operating income was $43.6 million and $43.2
million for the six months ended June 30, 2020 and 2019, respectively, an
increase of approximately 1%. Foreign exchange rates decreased segment operating
income by approximately 1%. The higher segment operating income was primarily a
result of higher operating income in Fragrances, partially offset by lower
operating profit in Natural Ingredients. The higher segment operating income in
Fragrances was primarily due to favorable volumes and product mix and lower raw
material costs, partially offset by higher manufacturing and other costs and
lower selling prices. The lower segment operating income in Natural Ingredients
was primarily due to higher raw material costs. Segment operating income as a
percent of revenue was 11.8% in the current six month period compared to 11.9%
in the prior year's comparable six month period.

Color

Segment revenue for the Color segment was $121.3 million and $138.9 million for
the three months ended June 30, 2020 and 2019, respectively. Foreign exchange
rates decreased segment revenue by approximately 4%. The decrease was a result
of lower segment revenue across Food & Beverage Colors, Personal Care, and Inks.
The lower revenue in Food & Beverage Colors was due to the unfavorable impact of
exchange rates, partially offset by higher volumes and higher selling prices.
The lower revenue in Personal Care was due to lower volumes due to lower demand
for makeup products primarily due to COVID-19 and the unfavorable impact of
exchange rates. The lower revenue in Inks was due to lower volumes primarily due
to COVID-19 and the unfavorable impact of exchange rates.

Segment revenue for the Color segment was $264.8 million and $282.8 million for
the six months ended June 30, 2020 and 2019, respectively. The decrease was a
result of lower segment revenue in Personal Care and Inks. Foreign exchange
rates also decreased segment revenue by approximately 3%. The lower revenue in
Personal Care was due to lower volumes due to lower demand for makeup products
primarily due to COVID-19 and the unfavorable impact of exchange rates. The
lower revenue in Inks was due to lower volumes primarily due to COVID-19 and the
unfavorable impact of exchange rates.

Segment operating income for the Color segment was $22.3 million and $27.9
million for the three months ended June 30, 2020 and 2019, respectively. Foreign
exchange rates decreased segment operating income by approximately 4%. The lower
segment operating income was primarily a result of lower operating income in
Personal Care and Inks. The lower segment operating income in Personal Care was
primarily a result of lower volumes due to lower demand for makeup products
primarily due to COVID-19. The lower segment operating income in Inks was a
result of unfavorable volumes primarily due to COVID-19. Segment operating
income as a percent of revenue was 18.4% in the current quarter and 20.1% in the
prior year's comparable quarter.

Segment operating income for the Color segment was $51.9 million and $58.1
million for the six months ended June 30, 2020 and 2019, respectively. Foreign
exchange rates decreased segment operating income by approximately 3%. The lower
segment operating income was primarily a result of lower operating income in
Personal Care and Inks, partially offset by higher operating income in Food &
Beverage Colors. The lower segment operating income in Personal Care was a
result of lower volumes due to lower demand for makeup products primarily due to
COVID-19 and the unfavorable impact of exchange rates. The lower segment
operating income in Inks was a result of unfavorable volumes primarily due to
COVID-19. The higher segment operating income in Food & Beverage Colors was due
to favorable volumes and product mix, higher selling prices, and lower raw
material costs, partially offset by the unfavorable impact of exchange rates.
Segment operating income as a percent of revenue was 19.6% in the current six
month period and 20.5% in the prior year's comparable six month period.

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Asia Pacific
Segment revenue for the Asia Pacific segment was $27.9 million and $29.0 million
for the three months ended June 30, 2020 and 2019, respectively. Foreign
exchange rates decreased segment revenue by approximately 3%. The lower segment
revenue was primarily due to lower volumes as a result of COVID-19 and the
unfavorable impact of exchange rates.

Segment revenue for the Asia Pacific segment was $58.3 million and $57.5 million
for the six months ended June 30, 2020 and 2019, respectively. Foreign exchange
rates decreased segment revenue by approximately 2%.

Segment operating income for the Asia Pacific segment was $4.8 million and $4.2
million for the three months ended June 30, 2020 and 2019, respectively, an
increase of approximately 15%. Foreign exchange rates decreased segment
operating income by approximately 1%. Segment operating income as a percent of
revenue was 17.4% in the current quarter and 14.5% in the prior year's
comparable quarter.

Segment operating income for the Asia Pacific segment was $9.9 million and $8.4
million for the six months ended June 30, 2020 and 2019, respectively, an
increase of approximately 18%. Foreign exchange rates had no significant impact
on segment operating income. The higher segment operating income was primarily
due to favorable volumes and product mix. Segment operating income as a percent
of revenue was 17.0% and 14.6% in the six months ended June 30, 2020 and 2019,
respectively.

Corporate & Other
The Corporate & Other operating expense was $7.7 million and $4.8 million for
the three months ended June 30, 2020 and 2019, respectively. The higher
operating expense for the three months ended June 30, 2020 was primarily due to
an increase in performance-based compensation, partially offset by $1.5 million
of net gains from the divestiture and other related activity. There were no
divestiture and other related costs or income in the prior year comparable
period.

The Corporate & Other operating expense was $28.8 million and $12.9 million for
the six months ended June 30, 2020 and 2019, respectively. The higher operating
expense for the six months ended June 30, 2020 was primarily due to an increase
in performance-based compensation and divestiture and other related costs of
$10.3 million. There were no divestiture and other related costs in the prior
year comparable period.

LIQUIDITY AND FINANCIAL CONDITION


Financial Condition
The Company's financial position remains strong. The Company is in compliance
with its financial loan covenants calculated in accordance with applicable
agreements as of June 30, 2020. See Note 5, Debt, to the Consolidated Condensed
Financial Statements included in this report for detail regarding a technical
default of its Second Amended and Restated Credit Agreement and each of its
private placement notes. The Company expects its cash flow from operations and
its available debt capacity can be used to meet future cash requirements for
operations, capital expenditures, dividend payments, acquisitions, and stock
repurchases.

Cash Flows from Operating Activities
Net cash provided by operating activities was $107.6 million and $76.2 million
for the six months ended June 30, 2020 and 2019, respectively. The increase in
net cash provided by operating activities was due to a $37.8 million increase in
cash provided from changes in working capital, primarily accounts payable and
other accrued expenses, during the six months ended June 30, 2020, compared to
the six months ended June 30, 2019.

Cash Flows from Investing Activities
Net cash used in investing activities was $5.8 million and $17.0 million during
the six months ended June 30, 2020 and 2019, respectively. During the six months
ended June 30, 2020, the Company received cash proceeds of $11.3 million related
to the Company's divestiture activities. In addition, during the six months
ended June 30, 2020, the Company received $4.6 million related to the redemption
of miscellaneous investments. Capital expenditures were $21.4 million and $16.6
million during the six months ended June 30, 2020 and 2019, respectively.

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Cash Flows from Financing Activities
Net cash used in financing activities was $93.6 million and $61.7 million for
the six months ended June 30, 2020 and 2019, respectively. Net debt decreased by
$60.2 million and $30.2 million for the six months ended June 30, 2020 and 2019,
respectively. For purposes of the cash flow statement, net changes in debt
exclude the impact of foreign exchange rates. Dividends of $33.0 million and
$30.5 million were paid during the six months ended June 30, 2020 and 2019,
respectively. Dividends paid were $0.78 per share and $0.72 per share for the
first six months of 2020 and 2019, respectively.

CONTRACTUAL OBLIGATIONS


There have been no material changes in the Company's contractual obligations
during the quarter ended June 30, 2020. For additional information about
contractual obligations, refer to "Contractual Obligations" under Item 7 of the
Company's Annual Report on Form 10-K for the year ended December 31, 2019.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2020, the Company had no off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company's critical accounting policies during the quarter ended June 30, 2020. For additional information about critical accounting policies, refer to "Critical Accounting Policies" under Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

© Edgar Online, source Glimpses

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