BELDEN INC. 10-Q

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview Belden Inc. (the Company, us, we, or our) is a global supplier of specialty networking solutions built around two global business platforms - Enterprise Solutions and Industrial Solutions. Our comprehensive portfolio of solutions enables customers to transmit and secure data, sound, and video for mission critical applications across complex enterprise and industrial environments. We strive for operational excellence through the execution of our Belden Business System, which includes three areas of focus: Lean enterprise initiatives, our Market Delivery System, and our Talent Management System. Through operational excellence we generate free cash flow on an annual basis. We utilize the cash flow generated by our business to fuel our continued transformation and generate shareholder value. We believe our business system, balance across markets and geographies, systematic go-to-market approach, extensive portfolio of innovative solutions, commitment to Lean principles, and improving margins present a unique value proposition for shareholders. We use a set of tools and processes that are designed to continuously improve business performance in the critical areas of quality, delivery, cost, and innovation. We consider revenue growth, Adjusted EBITDA margin, free cash flows, and return on invested capital to be our key operating performance indicators. We also seek to acquire businesses that we believe can help us achieve these objectives. Trends and Events The following trends and events during 2020 have had varying effects on our financial condition, results of operations, and cash flows. Global Pandemic On March 11, 2020, the World Health Organization (WHO) declared the outbreak of the novel coronavirus (COVID-19) a pandemic. The outbreak of COVID-19 has resulted and will continue to result in significant economic disruption and has affected and will adversely affect our business in the future. We have experienced and expect to continue to experience reductions in customer demand in several of our end-markets. We expect that the social distancing measures, the reduced operational status of some of our suppliers and reductions in production at certain facilities will continue to have an adverse impact on our operations, and general business uncertainty will continue to negatively impact demand in several of our end-markets in the near future. Our foremost focus has been on the health and safety of our employees and customers. In response to the outbreak, we have modified practices at our manufacturing locations and offices to adhere to guidance from the WHO, the U.S. Centers for Disease Control and Prevention and other local health and governmental authorities with respect to social distancing, physical separation, personal protective equipment and sanitization. We are approaching our response to this outbreak with a recognition that we provide essential and important products and services upon which our customers rely upon daily to support critical functions. Therefore, most, but not all, of our U.S. and global facilities have remained substantially operational during the outbreak while implementing enhanced safety protocols designed to protect the well-being of our employees. The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time. Unlike typical seasonal patterns in our business, revenues were down in the second quarter compared to the first quarter 2020. We will continue to proactively respond to the situation and may take further actions that alter our business operations as may be required by governmental authorities, or that we determine are in the best interests of our employees and customers. Foreign currency Our exposure to currency rate fluctuations primarily relates to exchange rate movements between the U.S. dollar and the euro, Canadian dollar, Hong Kong dollar, Chinese yuan, Japanese yen, Mexican peso, Australian dollar, British pound, Indian rupee, and Brazilian real. Generally, as the U.S. dollar strengthens against these foreign currencies, our revenues and earnings are negatively impacted as our foreign denominated revenues and earnings are translated into U.S. dollars at a lower rate. Conversely, as the U.S. dollar weakens against foreign currencies, our revenues and earnings are positively impacted. For both the three and six months ended June 28, 2020, approximately 44% of our consolidated revenues were to customers outside of the U.S. -28- In addition to the translation impact described above, currency rate fluctuations have an economic impact on our financial results. As the U.S. dollar strengthens or weakens against foreign currencies, it results in a relative price increase or decrease for certain of our products that are priced in U.S. dollars in a foreign location. Commodity prices Our operating results can be affected by changes in prices of commodities, primarily copper and compounds, which are components in some of the products we sell. Generally, as the costs of inventory purchases increase due to higher commodity prices, we raise selling prices to customers to cover the increase in costs, resulting in higher sales revenue but a lower gross profit percentage. Conversely, a decrease in commodity prices would result in lower sales revenue but a higher gross profit percentage. Selling prices of our products are affected by many factors, including end market demand, capacity utilization, overall economic conditions, and commodity prices. Importantly, however, there is no exact measure of the effect of changing commodity prices, as there are thousands of transactions in any given quarter, each of which has various factors involved in the individual pricing decisions. Therefore, all references to the effect of copper prices or other commodity prices are estimates. Channel Inventory Our operating results also can be affected by the levels of Belden products purchased and held as inventory by our channel partners and customers. Our channel partners and customers purchase and hold the products they bought from us in their inventory in order to meet the service and on-time delivery requirements of their customers. Generally, as our channel partners and customers change the level of products they buy from us and hold in their inventory, it impacts our revenues. Comparisons of our results between periods can be impacted by changes in the levels of channel inventory. We use information provided to us by our channel partners and make certain assumptions based on our sales to them to determine the amount of products they bought from us and hold in their inventory. As such, all references to the effect of channel inventory changes are estimates. Market Growth and Market Share The markets in which we operate can generally be characterized as highly competitive and highly fragmented, with many players. We monitor available data regarding market growth, including independent market research reports, publicly available indices, and the financial results of our direct and indirect peer companies, in order to estimate the extent to which our served markets grew or contracted during a particular period. We expect that our unit sales volume will increase or decrease consistently with the market growth rate. Our strategic goal is to utilize our Market Delivery System to target faster growing geographies, applications, and trends within our end markets, in order to achieve growth that is higher than the general market growth rate. To the extent that we exceed the market growth rates, we consider it to be the result of capturing market share. Earnout Consideration Payment During the six months ended June 28, 2020, we paid the sellers of Snell Advanced Media (SAM) the full earnout consideration of $31.4 million in cash as per the purchase agreement. SAM was acquired on February 8, 2018 and is included in the Grass Valley disposal group. See Note 1. Grass Valley: Discontinued Operations Treatment, Impairment Charges, and Subsequent Q3 Sale During the fourth quarter of 2019, we committed to a plan to sell Grass Valley, and at such time, met all of the criteria to classify the assets and liabilities of this business as held for sale. Furthermore, we determined a divestiture of Grass Valley represents a strategic shift that is expected to have a major impact on our operations and financial results. As a result, the Grass Valley disposal group, which was included in our Enterprise Solutions segment, has been reported within discontinued operations as of such time. As a result, the comparable prior period information has been recast to exclude the Grass Valley disposal group from continuing operations, with the exception of the Condensed Consolidated Cash Flow Statements. The Grass Valley disposal group excludes certain Grass Valley pension plans retained by Belden. During the three and six months ended June 28, 2020, we wrote down the carrying value of Grass Valley and recognized asset impairments totaling $89.8 million and $113.0 million , respectively. See Note 4. We completed the sale of Grass Valley to Black Dragon Capital on July 2, 2020 for gross cash consideration of $120.0 million, or approximately $67.0 million net of cash delivered with the business, plus various forms of deferred consideration. The cash consideration is subject to certain working capital adjustments. As part of the transaction, we also invested $3.0 million for a 9% equity interest in Grass Valley with the right to put the equity back to Black Dragon Capital at any time on or before October 31, 2020. We deconsolidated Grass Valley as of July 2, 2020 accordingly. See Note 19. -29- Segment Transfer Effective January 1, 2020, we transferred our West Penn Wire business and multi-conductor product lines from the Enterprise Solutions segment to the Industrial Solutions segment as a result of a shift in responsibilities among the segments. We have recast the prior period segment information to conform to the change in the composition of reportable segments. See Note 5. Cost Reduction Program During the fourth quarter of 2019, we began a cost reduction program to improve performance and enhance margins by streamlining the organizational structure and investing in technology to drive productivity. We recognized $3.5 million and $3.0 million of severance and other restructuring costs for this program during the three and six months ended June 28, 2020, respectively. The cost reduction program is expected to deliver an estimated $60.0 million reduction in selling, general, and administrative expenses on an annual basis, of which $40.0 million is expected to be realized in 2020, with the full benefit materializing in 2021. We expect to incur incremental costs of approximately $22.0 million for this program. See Note 11. SPC, Opterna and FutureLink Integration Program In 2019, we began a restructuring program to integrate SPC, Opterna and FutureLink with our existing businesses. The restructuring and integration activities are focused on achieving desired cost savings by consolidating existing and acquired facilities and other support functions. We recognized $0.9 million and $3.1 million of severance and other restructuring costs for this program during the three and six months ended June 28, 2020, respectively. These costs were incurred by the Enterprise Solutions segment. We expect to incur incremental costs of approximately $1.5 million for this program. See Note 11. Revolving Credit Agreement Due to the initial uncertainties arising from the COVID-19 pandemic and out of an abundance of caution, we drew down $190.0 million and subsequently repaid $100.0 million under our Revolving Credit Agreement during the second quarter. O ur Revolving Credit Agreement provides a $400.0 million multi-currency asset-based revolving credit facility and matures on May 16, 2022. Interest on outstanding borrowings is variable, based upon LIBOR or other similar indices in foreign jurisdictions, plus a spread that ranges from 1.25%-1.75%, depending upon our leverage position. As of June 28, 2020, we had $177.8 million of available borrowing capacity on the Revolver. See Note 12. Share Repurchase Program In 2018, our Board of Directors authorized a share repurchase program, which allows us to purchase up to $300.0 million of our common stock through open market repurchases, negotiated transactions, or other means, in accordance with applicable securities laws and other restrictions. This program is funded with cash on hand and cash flows from operating activities. During the three months ended June 28, 2020, we repurchased 0.4 million shares of our common stock under the share repurchase program for an aggregate cost of $13.8 million and an average price per share of $35.80. During the six months ended June 28, 2020, we repurchased 1.0 million shares of our common stock under the share repurchase program for an aggregate cost of $35.0 million at an average price per share of $35.83. See Note 18. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows that are or would be considered material to investors. Critical Accounting Policies During the six months ended June 28, 2020: • We did not change any of our existing critical accounting policies from those listed in our 2019 Annual Report on Form 10-K other than updating our accounting policies for the adoption of ASU 2016-13; • No existing accounting policies became critical accounting policies because of an increase in the materiality of associated transactions or changes in the circumstances to which associated judgments and estimates relate; and • There were no significant changes in the manner in which critical accounting policies were applied or in which related judgments and estimates were developed. -30- Results of Operations Consolidated Income before Taxes Three Months Ended Six Months Ended June 28, 2020 June 30, 2019 % Change June 28, 2020 June 30, 2019 % Change (In thousands, except percentages) Revenues $ 424,811 $ 548,352 (22.5) % $ 888,337 $ 1,048,492 (15.3) % Gross profit 149,940 205,072 (26.9) % 320,441 391,928 (18.2) % Selling, general and administrative expenses (91,703) (102,454) (10.5) % (190,092) (200,409) (5.1) % Research and development expenses (25,090) (24,775) 1.3 % (51,309) (48,022) 6.8 % Amortization of intangibles (16,017) (19,068) (16.0) % (32,202) (37,232) (13.5) % Operating income 17,130 58,775 (70.9) % 46,838 106,265 (55.9) % Interest expense, net (14,257) (13,961) 2.1 % (27,581) (27,949) (1.3) % Non-operating pension benefit 700 537 30.4 % 1,399 1,140 22.7 % Income from continuing operations before taxes 3,573 45,351 (92.1) % 20,656 79,456 (74.0) % Revenues decreased $123.5 million and $160.2 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019 due to the following factors: • Lower sales volume due in part to changes in channel inventory levels resulted in a $119.2 million and $164.7 million decrease in revenues in the three and six months ended June 28, 2020, respectively. • Copper prices had a $6.4 million and $10.8 million unfavorable impact on revenues in the three and six months ended June 28, 2020, respectively. • Currency translation had a $4.8 million and $8.6 million unfavorable impact on revenues in the three and six months ended June 28, 2020, respectively. • Acquisitions contributed an estimated $6.9 million and $23.9 million in revenues in the three and six months ended June 28, 2020, respectively. Gross profit decreased $55.1 million and $71.5 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019 due to the decreases in revenues discussed above as well as unfavorable mix; partially offset by the impact of acquisitions. Selling, general and administrative expenses decreased $10.8 million and $10.3 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019. For the three months ended June 28, 2020, benefits realized from our Cost Reduction Program as well as productivity improvement initiatives and currency translation contributed an estimated $13.7 million and $0.8 million decline in selling, general and administrative expenses, respectively; partially offset by a $2.2 million and $1.5 million increase from restructuring charges and acquisitions, respectively. For the six months ended June 28, 2020, benefits realized from our Cost Reduction Program as well as productivity improvement initiatives and currency translation contributed an estimated $19.9 million and $1.3 million decline in selling, general and administrative expenses, respectively; partially offset by a $5.8 million and $5.1 million increase from restructuring charges and acquisitions, respectively. Research and development expenses increased $0.3 million and $3.3 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019 primarily due to increased investments in R&D projects as well as acquisitions. Amortization of intangibles decreased $3.1 million and $5.0 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019 primarily due to certain intangible assets becoming fully amortized. Operating income decreased $41.6 million and $59.4 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019 primarily as a result of the decline in gross profit discussed above. Net interest expense remained relatively flat year-over-year, with an increase of $0.3 million and a decrease of $0.4 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019. The increase is the result of interest accrued on the Revolver borrowings during the second quarter of 2020, partially offset by currency translation. During the second quarter, we borrowed $190.0 million and subsequently repaid $100.0 million on our Revolver. See Note 12. -31- Income from continuing operations before taxes decreased $41.8 million and $58.8 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019 primarily due to the decline in operating income discussed above. Income Taxes Three Months Ended % Six Months Ended % June 28, 2020 June 30, 2019 Change June 28, 2020 June 30, 2019 Change (In thousands, except percentages) Income before taxes $ 3,573 $ 45,351 (92.1) % $ 20,656 $ 79,456 (74.0) % Income tax expense 400 3,956 (89.9) % 2,592 10,126 (74.4) % Effective tax rate 11.2 % 8.7 % 12.5 % 12.7 % For the three and six months ended June 28, 2020, we recognized income tax expense of $0.4 million and $2.6 million, respectively, representing an effective tax rate of 11.2% and 12.5%, respectively. The effective tax rates were impacted by income tax benefits for certain foreign tax credits of $0.1 million and $1.2 million in the three and six months ended June 28, 2020, respectively. In March 2020, the Coronavirus Relief and Economic Security Act (CARES Act) was signed into law in the United States. We are still analyzing the provisions of the CARES Act to determine if there will be any impact to our income tax provision for the year. For the three and six months ended June 30, 2019, we recognized income tax expense of $4.0 million and $10.1 million, respectively, representing an effective tax rate of 8.7% and 12.7%, respectively. The effective tax rates were impacted by an income tax benefit of $6.4 million as a result of changes in our estimated valuation allowance requirement related to foreign tax credits due to the restructuring of certain foreign operations. These effective rates are also reflective of the impact of more favorable statutory tax rates applied to the earnings of these foreign operations due to the restructuring efforts. Consolidated Adjusted Revenues and Adjusted EBITDA Three Months Ended % Six Months Ended % June 28, 2020 June 30, 2019 Change June 28, 2020 June 30, 2019 Change (In thousands, except percentages) Adjusted Revenues $ 424,811 $ 548,352 (22.5) % $ 888,337 $ 1,048,492 (15.3) % Adjusted EBITDA 49,142 91,588 (46.3) % 109,985 168,007 (34.5) % as a percent of adjusted revenues 11.6 % 16.7 % 12.4 % 16.0 % Adjusted Revenues decreased $123.5 million and $160.2 million in the three and six months ended June 28, 2020 from the comparable periods of 2019 due to the following factors: • Lower sales volume due in part to changes in channel inventory levels resulted in a $119.2 million and $164.7 million decrease in revenues in the three and six months ended June 28, 2020, respectively. • Copper prices had a $6.4 million and $10.8 million unfavorable impact on revenues in the three and six months ended June 28, 2020, respectively. • Currency translation had a $4.8 million and $8.6 million unfavorable impact on revenues in the three and six months ended June 28, 2020, respectively. • Acquisitions contributed an estimated $6.9 million and $23.9 million in revenues in the three and six months ended June 28, 2020, respectively. Adjusted EBITDA decreased $42.4 million and $58.0 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019 primarily as a result of the decrease in Adjusted Revenues discussed above. -32- Use of Non-GAAP Financial Information Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA margin, and free cash flow are non-GAAP financial measures. In addition to reporting financial results in accordance with accounting principles generally accepted in the United States, we provide non-GAAP operating results adjusted for certain items, including: asset impairments; accelerated depreciation expense due to plant consolidation activities; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value, and transaction costs; severance, restructuring, and acquisition integration costs; gains (losses) recognized on the disposal of businesses and tangible assets; amortization of intangible assets; gains (losses) on debt extinguishment; certain revenues and gains (losses) from patent settlements; discontinued operations; and other costs. We adjust for the items listed above in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability. We utilize the adjusted results to review our ongoing operations without the effect of these adjustments and for comparison to budgeted operating results. We believe the adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees our business operations on a day-to-day basis. As an example, we adjust for the purchase accounting effect of recording deferred revenue at fair value in order to reflect the revenues that would have otherwise been recorded by acquired businesses had they remained as independent entities. We believe this presentation is useful in evaluating the underlying performance of acquired companies. Similarly, we adjust for other acquisition-related expenses, such as amortization of intangibles and other impacts of fair value adjustments because they generally are not related to the acquired business' core business performance. As an additional example, we exclude the costs of restructuring programs, which can occur from time to time for our current businesses and/or recently acquired businesses. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight. Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States. The following tables reconcile our GAAP results to our non-GAAP financial measures: Three Months Ended Six Months Ended June 28, 2020 June 30, 2019 June 28, 2020 June 30, 2019 (In thousands, except percentages) GAAP and adjusted revenues $ 424,811 $ 548,352 $ 888,337 $ 1,048,492 GAAP net income (loss) $ (67,881) $ 42,290 $ (79,100) $ 67,468 Loss (income) from discontinued operations, net of tax 71,054 (895) 97,164 1,862 Amortization of intangible assets 16,017 19,068 32,202 37,232 Interest expense, net 14,257 13,961 27,581 27,949 Depreciation expense 10,332 9,908 20,614 20,011 Severance, restructuring, and acquisition integration costs (1) 4,472 2,519 8,091 2,519 Income tax expense 400 3,956 2,592 10,126 Amortization of software development intangible assets 386 63 716 122 Purchase accounting effects related to acquisitions (2) 105 718 125 718 Adjusted EBITDA $ 49,142 $ 91,588 $ 109,985 $ 168,007 GAAP net income (loss) margin (16.0) % 7.7 % (8.9) % 6.4 % Adjusted EBITDA margin 11.6 % 16.7 % 12.4 % 16.0 % (1) See Note 11, Severance, Restructuring, and Acquisition Integration Activities, for details. (2) During the three and six months ended June 28, 2020, we recognized cost of sales related to purchase accounting adjustments of acquired inventory to fair value for the SPC acquisition. During the three and six months ended June 30, 2019, we recognized expenses related to the earnout consideration for the SAM acquisition as well as cost of sales for the adjustment of acquired inventory to fair value for the Opterna and FutureLink acquisitions. -33- Segment Results of Operations For additional information regarding our segment measures, see Note 5 to the Condensed Consolidated Financial Statements. Enterprise Solutions Three Months Ended % Six Months Ended % June 28, 2020 June 30, 2019 Change June 28, 2020 June 30, 2019 Change (In thousands, except percentages) Segment Revenues $ 203,374 $ 245,325 (17.1) % $ 415,587 $ 452,408 (8.1) % Segment EBITDA 22,231 35,571 (37.5) % 46,943 57,206 (17.9) % as a percent of segment revenues 10.9 % 14.5 % 11.3 % 12.6 % Enterprise Solutions revenues decreased $42.0 million and $36.8 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019. As compared to the year ago period, for the three months ended June 28, 2020, decreases in volume, lower copper prices, and unfavorable currency translation contributed $45.2 million, $2.4 million, and $1.3 million, respectively, to the decline in revenues; partially offset by acquisitions which grew revenues by $6.9 million. For the six months ended June 28, 2020, decreases in volume, lower copper prices, and unfavorable currency translation contributed $54.2 million, $4.4 million, and $2.1 million, respectively, to the decline in revenues; partially offset by acquisitions which grew revenues by $23.9 million over the year ago period. Enterprise Solutions EBITDA decreased $13.3 million and $10.3 million in the three and six months ended June 28, 2020, respectively, compared to the year ago periods primarily as a result of the decrease in revenues discussed above. Industrial Solutions Three Months Ended % Six Months Ended % June 28, 2020 June 30, 2019 Change June 28, 2020 June 30, 2019 Change (In thousands, except percentages) Segment Revenues $ 221,437 $ 303,027 (26.9) % $ 472,750 $ 596,084 (20.7) % Segment EBITDA 26,449 55,744 (52.6) % 61,976 110,408 (43.9) % as a percent of segment revenues 11.9 % 18.4 % 13.1 % 18.5 % Industrial Solutions revenues decreased $81.6 million and $123.3 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019. The decrease in revenues in the three months ended June 28, 2020 from the comparable period of 2019 was primarily due to decreases in volume, lower copper prices, and unfavorable currency translation, which had an estimated impact of $74.1 million, $4.0 million, and $3.5 million, respectively. The decrease in revenues in the six months ended June 28, 2020 from the comparable period of 2019 was primarily due to decreases in volume, unfavorable currency translation, and lower copper prices, which had an estimated impact of $110.4 million, $6.5 million, and $6.4 million, respectively. The decrease in volume was due in part to declines in the levels of inventory at our channel partners during the six months ended June 28, 2020. Industrial Solutions EBITDA decreased $29.3 million and $48.4 million in the three and six months ended June 28, 2020, respectively, from the comparable periods of 2019 primarily as a result of the decline in revenues discussed above. Liquidity and Capital Resources Significant factors affecting our cash liquidity include (1) cash from operating activities, (2) disposals of businesses and tangible assets, (3) cash used for acquisitions, restructuring actions, capital expenditures, share repurchases, dividends, and senior subordinated note repurchases, and (4) our available credit facilities and other borrowing arrangements. We expect our operating activities to generate cash in 2020 and believe our sources of liquidity are sufficient to fund current working capital requirements, capital expenditures, contributions to our retirement plans, share repurchases, senior subordinated note repurchases, quarterly dividend payments, and our short-term operating strategies. However, we may require external financing in the event we complete a significant acquisition. Our ability to continue to fund our future needs from business operations could be affected by many factors, including, but not limited to: economic conditions worldwide, customer demand, competitive market forces, customer acceptance of our product mix, and commodities pricing. -34- The following table is derived from our Condensed Consolidated Cash Flow Statements and includes the results and cash flow activity of Grass Valley consistent with the Condensed Consolidated Cash Flow Statements: Six Months Ended June 28, 2020 June 30, 2019 (In thousands) Net cash provided by (used for): Operating activities $ (12,130) $ 21,645 Investing activities (38,054) (101,267) Financing activities 19,959 (46,438) Effects of currency exchange rate changes on cash and cash equivalents (2,620) 693 Decrease in cash and cash equivalents (32,845) (125,367) Cash and cash equivalents, beginning of period 425,885 420,610 Cash and cash equivalents, end of period $ 393,040 $ 295,243 Operating cash flows were a use of cash of $12.1 million in the six months ended June 28, 2020 as compared to a source of cash of $21.6 million in the six months ended June 30, 2019. Operating cash flows declined $33.8 million in the six months ended June 28, 2020 as compared to the year ago period primarily due to the decreases in revenues and income discussed above. Net cash used for investing activities totaled $38.1 million in the six months ended June 28, 2020, compared to $101.3 million in the six months ended June 30, 2019. Investing activities for the six months ended June 28, 2020 included capital expenditures of $41.7 million compared to $50.8 million in the comparable period of 2019. The six months ended June 28, 2020 also included $3.1 million of proceeds from the sale of tangible property and the receipt of $0.6 million related to a working capital adjustment for the acquisition of SPC. The six months ended June 30, 2019 included payments, net of cash acquired for acquisitions of $50.5 million primarily for the acquisition of Opterna. Net cash provided by financing activities totaled $20.0 million for the six months ended June 28, 2020, compared to a use of cash of $46.4 million for the six months ended June 30, 2019. Financing activities for the six months ended June 28, 2020 included borrowings on our revolver of $190.0 million, repayments of our revolver borrowings of $100.0 million, payments under our share repurchase program of $35.0 million, earnout consideration payments of $29.3 million, cash dividend payments of $4.6 million, and net payments related to share based compensation activities of $1.1 million. Financing activities for the six months ended June 30, 2019 included payments under our share repurchase program of $22.8 million, cash dividend payments of $21.4 million, and net payments related to share based compensation activities of $2.0 million. Our cash and cash equivalents balance, including discontinued operations, was $393.0 million as of June 28, 2020. Of this amount, $195.0 million was held outside of the U.S. in our foreign operations. Substantially all of the foreign cash and cash equivalents are readily convertible into U.S. dollars or other foreign currencies. We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and accordingly, no provision for any withholding taxes has been recorded. Upon distribution of those earnings in the form of dividends or otherwise, we may be subject to withholding taxes payable to the respective foreign countries. Our outstanding debt obligations as of June 28, 2020 consisted of $1,465.9 million of senior subordinated notes. Furthermore, as of June 28, 2020, we also had borrowings of $90.0 million outstanding on our Revolver, with an additional $177.8 million of available borrowing capacity under our Revolver. Additional discussion regarding our various borrowing arrangements is included in Note 12 to the Condensed Consolidated Financial Statements. -35- Forward-Looking Statements Statements in this report other than historical facts are “forward-looking statements” made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding future financial performance (including revenues, expenses, earnings, margins, cash flows, dividends, capital expenditures and financial condition), plans and objectives, and related assumptions. These forward-looking statements reflect management’s current beliefs and expectations and are not guarantees of future performance. Actual results may differ materially from those suggested by any forward-looking statements based on a number of factors. These factors include, among others, those set forth in Part II, Item 1A and in other documents that we file with the SEC. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.