What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-06 · 103 added, 89 removed, 251 unchanged (43% of the section changed)

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We believe that our focus on application-specific standard products utilizing innovative, highly efficient packaging and cost-effective process technologies, coupled with our collaborative, customer-focused product development, provides us with a meaningful competitive advantage relative to other semiconductor companies.

Factors Relevant to Our Results of Operations for the Three Months Ended June 30, 2020

During the second quarter of 2020, net sales were $288.7 million, a decrease of 10.3% from the $322.0 million in the second quarter of 2019, and an increase of 2.8% from the $280.7 million in the first quarter of 2020;

Gross profit was $101.5 million, a decrease of 16.8% from the $122.0 million of gross profit in the second quarter of 2019, and an increase of 5.9% from the $95.8 million in the first quarter of 2020;

Gross profit margin was 35.2%, compared to gross profit margin of 37.9% in the second quarter of 2019, and 34.1% in the first quarter of 2020;

Net income was $21.0 million, or $0.40 per diluted share, compared to net income of $36.3 million, or $0.70 per diluted share, in the second quarter of 2019, and net income of $20.2 million, or $0.38 per diluted share in the first quarter of 2020;

Factors Relevant to Our Results of Operations for the Three Months Ended September 30, 2020

During the third quarter of 2020, net sales were $309.5 million, a decrease of 4.4% from the $323.7 million in the third quarter of 2019, and an increase of 7.2% from the $288.7 million in the second quarter of 2020;

Gross profit was $111.1 million, a decrease of 8.9% from the $122.0 million of gross profit in the third quarter of 2019, and an increase of 9.5% from the $101.5 million in the second quarter of 2020;

Gross profit margin was 35.9%, compared to gross profit margin of 37.7% in the third quarter of 2019, and 35.2% in the second quarter of 2020;

Net income was $27.2 million, or $0.51 per diluted share, compared to net income of $38.1 million, or $0.73 per diluted share, in the third quarter of 2019, and net income of $21.0 million, or $0.40 per diluted share in the second quarter of 2020;

Cash flow from operations was $39.7 million.

Net cash flow was a positive $283.7 million, which includes $16.5 million of capital expenditures and a $200.0 million draw-down under the new and restated credit agreement , as a partial currency hedge, associated with the anticipated close of the LSC acquisition.

Net cash flow was a positive $85.2 million, which includes $17.8 million of capital expenditures and a $105.0 million draw-down under our amended and restated credit agreement , as a partial currency hedge, associated with the anticipated close of the LSC acquisition.

Recent Developments

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In the third quarter of 2019 we entered into a Share Swap Agreement that provides for the acquisition of Lite-On Semiconductor Corporation (“LSC”) and its subsidiaries by the Company.

At the effective date of the transaction, each share of LSC will be converted into the right to receive TWD $42.50 per share in cash, or approximately US $1.45 per share based on June 30, 2020 exchange rates.

The aggregate consideration payable by the Company, based on the June 30, 2020 exchange rate, is approximately $444.4 million.

At the effective date of the transaction, each share of LSC will be converted into the right to receive TWD $42.50 per share in cash, or approximately US $1.47 per share based on September 30, 2020 exchange rates.

The aggregate consideration payable by the Company, based on the September 30, 2020 exchange rate, is approximately $451.4 million.

This amount is subject to change, based on the Taiwan dollar to United States dollar exchange rate at closing.

The acquisition received LSC shareholder approval in October 2019, and Taiwan regulatory approval in March 2020.

We anticipate completing the acquisition in the second half of 2020, subject to customary closing conditions and remaining regulatory approval pending in China.

The acquisition received LSC shareholder approval in October 2019, Taiwan regulatory approval in March 2020 and China regulatory approval in September 2020.

We anticipate completing the acquisition by the end of November 2020, subject to customary closing conditions.

On May 29, 2020, the Company entered into an amended and restated credit agreement that provides the borrowing capacity to fund the purchase of LSC.

The Company has drawn $200.0 million under the new and restated credit agreement as a partial currency hedge associated with the purchase of LSC.

The Company has drawn $305.0 million under the amended and restated credit agreement as a partial currency hedge associated with the purchase of LSC.

See “Liquidity and Capital Resources,” below for additional information related to the amended and restated credit agreement.

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No assurances can be provided that we will not be required to close or reduce our manufacturing production in the future in response to the COVID-19 pandemic or other events beyond our control.

As of June 30, 2020, our cash, cash equivalents, and short-term investments were $506.9 million, and we had access to additional borrowing capacity of $150 million under the revolving portion our U.S.

As of September 30, 2020, our cash, cash equivalents, and short-term investments were $590.7 million, and we had access to additional borrowing capacity of $150 million under the revolving portion our U.S.

Credit Facility, which we believe assures us adequate liquidity to manage the impacts of the COVID-19 pandemic on our business to cover cash needs for working capital and capital expenditures for at least the next 12 months.

Please see “Risk Factors - The ultimate impact of the COVID-19 pandemic outbreak cannot be estimated at this time, but it may have a material adverse effect on our business, financial condition and results of operations.” in Item 1A of this Quarterly Report on Form 10-Q for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial condition and results of operations.

Results of Operations for the Three Months Ended June 30, 2020 and 2019

Results of Operations for the Three Months Ended September 30, 2020 and 2019

The table below sets forth the condensed consolidated statement of operations line items as a percentage of net sales.

Percent of Net Sales

Three Months Ended June 30,

Three Months Ended September 30,

Cost of goods sold

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Net income attributable to common stockholders

The following table and discussion explains in greater detail our consolidated operating results and financial condition for the three months ended June 30, 2020, compared to the three months ended June 30, 2019.

The following table and discussion explains in greater detail our consolidated operating results and financial condition for the three months ended September 30, 2020, compared to the three months ended September 30, 2019.

This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Three Months Ended

September 30,

Increase/(Decrease)

5 unchanged sentences

Income tax provision

Net sales decreased approximately $33.3 million for the three months ended June 30, 2020, compared to the same period last year.

Net sales decreased approximately $14.2 million for the three months ended September 30, 2020, compared to the same period last year.

This decrease in net sales reflects the global economic slowdown caused by the COVID-19 pandemic.

Despite the overall decrease in net sales, in the second quarter of 2020, the Company benefited from growth in the computing market and our serial-connectivity products.

The table below sets forth our revenue as a percentage of total revenue by end-user market for the three months ended June 30, 2020 and 2019:

Despite the overall decrease in net sales, in the third quarter of 2020, the Company benefited from growth in the automotive, consumer and computing end markets and our serial-connectivity products.

Net sales for the third quarter of 2020 increased 7.2% when compared to the second quarter of 2020 .

The table below sets forth our revenue as a percentage of total revenue by end-user market for the three months ended September 30, 2020 and 2019:

Three Months Ended

September 30,

Communications

Cost of goods sold decreased approximately $12.8 million for the three months ended June 30, 2020, compared to the same period last year due to the decreased net sales during the second quarter of 2020.

As a percent of sales, cost of goods sold was 64.8% for the three months ended June 30, 2020, compared to 62.0% for the same period last year.

Average unit cost increased

approximately 2.0% for the three months ended June 30, 2020, compared to the same period last year.

For the three months ended June 30, 2020, gross profit decreased approximately 16.8% when compared to the same period last year.

Gross profit margin for the three month periods ended June 30, 2020 and 2019 was 35.2% and 37.9%, respectively.

The decrease in gross profit margin reflects the 10 .4% decrease in net sales and an increase in unit costs driven by lower manufacturing capacity utilization.

Operating expenses for the three months ended June 30, 2020, decreased approximately $2.8 million, or 3.9%, compared to the three months ended June 30, 2019.

Operating expenses as a percentage of net sales was 24.5% and 22.8% for the three months ended June 30, 2020 and 2019, respectively.

Selling, general and administrative expenses (“SG&A”) decreased approximately $2.0 million and research and development expenses (“R&D”) decreased approximately $0.4 million, each as compared to the same period last year.

Cost of goods sold decreased approximately $3.3 million for the three months ended September 30, 2020, compared to the same period last year due to the decreased net sales during the third quarter of 2020.

As a percent of sales, cost of goods sold was 64.1%

for the three months ended September 30, 2020, compared to 62.3% for the same period last year.

Average unit cost decreased approximately 2.4% for the three months ended September 30, 2020, compared to the same period last year.

For the three months en ded September 30, 2020, gross profit decreased approximately 9.0% when compared to the same period last year.

Gross profit margin for the three month periods ended September 30, 2020 and 2019 was 35.9% and 37.7%, respectively.

The decrease in gross profit margin reflects the 4.4% decrease in net sales.

Operating expenses for the three months ended September 30, 2020, were flat when compared to the three months ended September 30, 2019.

Operating expenses as a percentage of net sales was 23.7% and 22.7% for the three months ended September 30, 2020 and 2019, respectively.

Selling, general and administrative expenses (“SG&A”) decreased approximately $1.5 million and research and development expenses (“R&D”) increased approximately $1.8 million, each as compared to the same period last year.

Amortization of acquisition related intangibles decreased $0.5 million, compared to the same period last year.

SG&A, as a percentage of net sales, was 15.7% and 14.7% for the three months ended June 30, 2020 and 2019, respectively.

R&D, as a percentage of net sales, was 7.4% and 6.7% for the three months ended June 30, 2020 and 2019, respectively.

Interest income decreased 73.5% for the three months ended June 30, 2020, compared to the same period last year, due to a reduction in short-term investments.

Interest expense increased 31.9% for the three months ended June 30, 2020, compared to the same period last year.

The increase in interest expense for the three months ended June 30, 2020 was due to a $200.0 million draw-down under the new and restated credit agreement, as a partial currency hedge, associated with the anticipated close of the LSC acquisition, leading to higher levels of borrowing, partially offset by lower interest rates on the floating rate portion.

We recognized an income tax expense of approximately $4.7 million and $11.2 million for the three months ended June 30, 2020 and 2019, respectively.

SG&A, as a percentage of net sales, was 14.4% and 14.2% for the three months ended September 30, 2020 and 2019, respectively.

R&D, as a percentage of net sales, was 7.9% and 7.0% for the three months ended September 30, 2020 and 2019, respectively.

Interest income decreased 49.3% for the three months ended September 30, 2020, compared to the same period last year, due to a reduction in short-term investments.

Interest expense increased 86.6% for the three months ended September 30, 2020, compared to the same period last year.

The increase in interest expense for the three months ended September 30, 2020 was due to the increased debt under our amended and restated credit agreement, as a partial currency hedge, associated with the anticipated close of the LSC acquisition, leading to higher levels of borrowing, partially offset by lower interest rates on the floating rate portion.

We recognized an income tax expense of approximately $5.9 million and $10.6 million for the three months ended September 30, 2020 and 2019, respectively.

The decrease in income taxes for 2020 compared to 2019 was primarily attributable to a decrease in pretax book income, a decrease in non-U.S.

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permanent differences.

Results of Operations for the Six Months Ended June 30, 2020 and 2019

Results of Operations for the Nine Months Ended September 30, 2020 and 2019

The table below sets forth the condensed consolidated statement of operations line items as a percentage of net sales.

Percent of Net Sales

Six Months Ended June 30,

Nine Months Ended September 30,

Cost of goods sold

5 unchanged sentences

Net income attributable to common stockholders

The following table and discussion explains in greater detail our consolidated operating results and financial condition for the six months ended June 30, 2020, compared to the six months ended June 30, 2019.

The following table and discussion explains in greater detail our consolidated operating results and financial condition for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Six Months Ended

Nine Months Ended

September 30,

Increase/(Decrease)

5 unchanged sentences

Income tax provision

Net sales decreased approximately $54.9 million for the six months ended June 30, 2020, compared to the same period last year.

Net sales decreased approximately $69.1 million for the nine months ended September 30, 2020, compared to the same period last year.

This decrease in net sales reflects the global economic slowdown caused by the COVID-19 pandemic.

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Our operations in China and the United Kingdom have both resumed full production.

The table below sets forth our revenue as a percentage of total revenue by end-user market for the six months ended June 30, 2020 and 2019:

Six Months Ended

The table below sets forth our revenue as a percentage of total revenue by end-user market for the nine months ended September 30, 2020 and 2019:

Nine Months Ended

September 30,

Communications

Cost of goods sold decreased approximately $17.8 million for the six months ended June 30, 2020, compared to the same period last year, due, in part, to the decreased net sales during the first half of 2020.

As a percent of sales, cost of goods sold was 65.3% for the six months ended June 30, 2020, compared to 62.5% for the same period last year.

Average unit cost increased approximately 7.1% for the six months ended June 30, 2020, compared to the same period last year, in part due to the shutdown of our manufacturing facilities due to the extended Chinese New Year period.

For the six months ended June 30, 2020, gross profit decreased approximately 15.8% when compared to the same period last year.

Gross profit margin for the six month periods ended June 30, 2020 and 2019 was 34.7% and 37.5%, respectively.

Cost of goods sold decreased approximately $21.1 million for the nine months ended September 30, 2020, compared to the same period last year, due, in part, to the decreased net sales during the first nine months of 2020.

As a percent of sales, cost of goods sold was 64.9% for the nine months ended September 30, 2020, compared to 62.4% for the same period last year.

Average unit cost increased approximately 3.6% for the nine months ended September 30, 2020, compared to the same period last year, in part due to the shutdown of our manufacturing facilities due to the extended Chinese New Year period.

For the nine months ended September 30, 2020, gross profit decreased approximately 13.5% when compared to the same period last year.

Gross profit margin for the nine month periods ended September 30, 2020 and 2019 was 35.1% and 37.6%, respectively.

The decrease in gross profit margin reflects the 7.3% decrease in net sales and an increase in unit costs driven by lower manufacturing capacity utilization.

Operating expenses for the six months ended June 30, 2020, decreased approximately $3.1 million, or 2.2%, compared to the six months ended June 30, 2019.

Operating expenses as a percentage of net sales was 24.7% and 23.0% for the six months ended June 30, 2020 and 2019, respectively.

Operating expenses for the nine months ended September 30, 2020, decreased approximately $3.2 million, or 1.5%, compared to the nine months ended September 30, 2019.

Operating expenses as a percentage of net sales was 24.3% and 22.9% for the nine months ended September 30, 2020 and 2019, respectively.

SG&A decreased approximately $4.9 million and R&D increased approximately $2.9 million, each as compared to the same period last year.

Amortization of acquisition related intangibles decreased $1.3 million, compared to the same period last year.

SG&A, as a percentage of net sales, was 15.4% and 14.6% for the six months ended June 30, 2020 and 2019, respectively.

R&D, as a percentage of net sales, was 7.9% and 7.0% for the six months ended June 30, 2020 and 2019, respectively.

Interest income decreased 70.8% for the six months ended June 30, 2020, compared to the same period last year, due to $0.7 million of interest income received in the six months ended June 30, 2019 related to the settlement of a cross-currency swap and reduction in short-term investments.

Interest expense decreased 6.2% for the six months ended June 30, 2020, compared to the same period last year.

The decrease in interest expense for the six months ended June 30, 2020 was due to lower levels of debt along with lower interest rates on the floating rate portion of our debt.

We recognized an income tax expense of approximately $9.2 million and $21.5 million for the six months ended June 30, 2020 and 2019, respectively.

SG&A, as a percentage of net sales, was 15.1% and 14.2% for the nine months ended September 30, 2020 and 2019, respectively.

R&D, as a percentage of net sales, was 7.9% and 7.0% for the nine months ended September 30, 2020 and 2019, respectively.

Interest income decreased 67.5% for the nine months ended September 30, 2020, compared to the same period last year, due to $0.7 million of interest income received in the nine months ended September 30, 2019 related to the settlement of a cross-currency s wap and reduction in short-term investments.

Interest expense increased 24.0% for the nine months ended September 30, 2020, compared to the same period last year.

The increase in interest expense for the nine months ended September 30, 2020 was due to hig her levels of debt as the draws on our amended and restated credit facility in anticipation of closing the LSC acquisition.

We recognized an income tax expense of approximately $15.1 million and $32.1 million for the nine months ended September 30, 2020 and 2019, respectively.

The decrease in income taxes for 2020 compared to 2019 was primarily attributable to a decrease in pretax book income, a decrease in non-U.S.

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Our Asia subsidiaries maintain credit facilities with several financial institutions through our foreign entities worldwide totaling $155.7 million.

At June 30, 2020, outstanding borrowings were $63.7 million and outstanding letters of credit were $0.4 million under the Asia credit facilities.

At September 30, 2020, outstanding borrowings were $70.7 million and outstanding letters of credit were $0.4 million under the Asia credit facilities.

Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted, repayable on demand, terminable by the lender at any time and contain no restrictive covenants.

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Interest payments are due monthly on outstanding amounts under the credit lines.

In conn ection with our Asia credit facilities $51.4 million of cash deposits have been restricted in support of a corresponding loan amount.

In connection with our Asia credit facilities $52.2 million of cash deposits have been restricted in support of a corresponding loan amount.

Long-term debt

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The Credit Agreement rebalances the Company’s existing senior credit facilities under the Existing Credit Agreement from (x) aggregate credit facilities of $500,000,000, consisting of (A) a $250,000,000 revolving senior credit facility, which included a $10,000,000 swing line sublimit, a $10,000,000 letter of credit sublimit, and a $20,000,000 alternative currency sublimit, and (B) a $250,000,000 term loan to (y) aggregate credit facilities of $670,000,000 consisting of (A) an acquisition draw term commitment of $340,000,000 (the “Acquisition Draw Term Commitment”), (B) an initial term commitment of $180,000,000 (the “Initial Term Commitment” and, together with the Acquisition Draw Term Commitment, the “Term Loan”) and (C) a $150,000,000 revolving senior credit facility (the “Revolver”), which includes a $20,000,000 uncommitted swing line submit, a $10,000,000 letter of credit sublimit, and a $40,000,000 alternative currency sublimit.

The Company analyzed this amendment pursuant to the guidance in ASC No.

The Company analyzed the amendment to the Existing Credit Agreement pursuant to the guidance in ASC No.

470-50, Debt—Modifications and Extinguishments.

The Company determined that certain lenders had changes in cash flows which were substantially different as a result of the amendment, which resulted in a debt extinguishment of $52.2 million and a loss on extinguishment and third-party fees of $0.7 million being expensed in the three-month period ended June 30, 2020.

The Company determined that certain lenders had changes in cash flows which were substantially different as a result of the amendment to the Existing Credit Agreement, which resulted in a debt extinguishment of $52.2 million and a loss on extinguishment and third-party fees of $0.7 million being expensed in the three-month period ended June 30, 2020.

The Revolver and the Term Loan mature on May 29, 2023 (the “Maturity Date”).

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The Credit Agreement contains certain financial and non-financial covenants, including, but not limited to, a maximum Consolidated Leverage Ratio, a minimum Consolidated Fixed Charge Coverage Ratio, and restrictions on liens, indebtedness, investments, fundamental changes, dispositions, and restricted payments (including dividends and share repurchases).

These covenants are generally similar to the corresponding covenants in the Existing Credit Agreement, except that certain amounts permitted as exceptions to negative covenants restricting liens, indebtedness, investments, dispositions and restricted payments have been revised, and additional exceptions to certain negative covenants have been added, including increased capacity for certain intercompany Indebtedness and Investment (including existing Lite-On Indebtedness), and the right to enter into certain securitization transactions and receivables facilities, subject to limitations set forth in the Credit Agreement.

Furthermore, under the Credit Agreement, restricted payments, including dividends and share repurchases, are permitted in certain circumstances, including while the pro forma Consolidated Leverage Ratio is, both before and after giving effect to any such restricted payment, at least 0.25 to 1.00 less than the maximum permitted under the Credit Agreement.

intercompany Indebtedness and Investment (including ex isting Lite-On Indebtedness), and the right to enter into certain securitization transactions and receivables facilities, subject to limitations set forth in the Credit Agreement.

Furthermore, under the Credit Agreement, restricted payments, including div idends and share repurchases, are permitted in certain circumstances, including while the pro forma Consolidated Leverage Ratio is, both before and after giving effect to any such restricted payment, at least 0.25 to 1.00 less than the maximum permitted un der the Credit Agreement.

In addition to the liquidity provided by the Credit Agreement, our 51% owned subsidiary, ERIS Technology Corporation (“ERIS”), borrowed $13.7 million through a short term loan and $29.4 million on a long-term basis from local Taiwan banks.

The ERIS debt matures in periods from 2020 through 2033.

The details of our borrowings outstanding as of June 30, 2020 are set forth in the table below:

The details of our borrowings outstanding as of September 30, 2020 are set forth in the table below:

September 30,

Current Amount

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1-M deposit rate plus 0.08%

Notes payable to E Sun Bank

1-M deposit rate plus 0.08%

Notes payable to E Sun Bank

1-M deposit rate plus 0.08%

Term loan and revolver

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In the second quarter of 2020, as described above, we increased our borrowing capacity and our outstanding borrowings due to the anticipated close of the LSC acquisition later this year.

During the second quarter of 2020, we had a $200.0 million draw-down under the new and restated credit agreement, as a partial currency hedge, associated with the anticipated close of the LSC acquisition.

At June 30, 2020 and December 31, 2019, our working capital was $801.2 million and $524.6 million, respectively.

As of September 30, 2020, we had a $305 million draw-down under our amended and restated credit agreement, as a partial currency hedge, associated with the anticipated close of the LSC acquisition.

At September 30, 2020 and December 31, 2019, our working capital was $893.2 million and $524.6 million, respectively.

We expect cash generated by our operations together with existing cash, cash equivalents, short-term investments and available credit facilities to be sufficient to cover cash needs for working capital and capital expenditures and acquisitions for at least the next 12 months.

Capital expenditures (including accrued capital expenditures) for the six months ended June 30, 2020 and 2019 were $28.3 million and $52.7 million, respectively.

For the first six months of 2020 capital expenditures were approximately 5.0% of our net sales, which is in line with our capital spending target range of 5% to 9% of net sales.

Capital expenditures (including accrued capital expenditures) for the nine months ended September 30, 2020 and 2019 were $47.5 million and $77.4 million, respectively.

For the first nine months of 2020 capital expenditures were approximately 5.4% of our net sales, which is in line with our capital spending target range of 5% to 9% of net sales.

Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of certain European and Asian subsidiaries.

As of June 30, 2020, our foreign subsidiaries held approximately $469.5 million of cash, cash equivalents and investments of which approximately $9.7 million would be subject to a potential non-U.S.

As of September 30, 2020, our foreign subsidiaries held approximately $526.0 million of cash, cash equivalents and investments of which approximately $7.6 million would be subject to a potential non-U.S.

withholding tax if distributed outside the country in which the cash is currently held.

The majority of this $9.7 million is held in Taiwan.

As of June 30, 2020, we had short-term investments totaling $3.7 million.

All of this $7.6 million is held in Korea and Taiwan.

As of September 30, 2020, we had short-term investments totaling $3.0 million.

These investments are highly liquid with maturity dates greater than three months at the date of purchase.

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Additional sources of liquidity are cash and cash equivalents, short-term investments and our credit facilities.

Our cash and cash equivalents increased from $258.4 million at December 31, 2019 to $503.2 million at June 30, 2020, reflecting the funds that will be used to consummate the purchase of LSC.

Our cash and cash equivalents increased from $258.4 million at December 31, 2019 to $587.6 million at September 30, 2020, reflecting the funds that will be used to consummate the purchase of LSC.

The table below sets forth a summary of the condensed consolidated statements of cash flows:

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash flows provided by operating activities

Net cash and cash equivalents used in investing activities

Net cash and cash equivalents (used in) provided by financing activities

Net cash and cash equivalents (used in) provided by investing activities

Net cash and cash equivalents provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

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Operating Activities

Net cash flows provided by operating activities for the six months ended June 30, 2020 was $86.7 million.

Net cash flows provided by operating activities for the six months ended June 30, 2020 resulted from net income of $41.8 million, depreciation and amortization of intangible assets of $53.9 million, share-based compensation of $12.4 million, partially offset by a decrease in inventories of $19.8 million and a decrease in noncash working capital accounts, excluding inventory, of $0.4 million.

Net cash flows provided by operating activities for the six months ended June 30, 2019 was $110.5 million.

Net cash flows provided by operating activities for the six months ended June 30, 2019, resulted from net income of $68.4 million, depreciation and amortization of intangible assets of $54.4 million, share-based compensation of $9.8 million and a decrease in noncash working capital accounts of $21.5 million.

Net cash flows provided by operating activities for the nine months ended September 30, 2020 was $126.4 million.

Net cash flows provided by operating activities for the nine months ended September 30, 2020 resulted from net income of $69.2 million, depreciation and amortization of intangible assets of $80.4 million, and share-based compensation of $18.7 million, partially offset by a decrease in deferred taxes of $10.2 million, a decrease in inventories of $20.5 million and a decrease in noncash working capital accounts, excluding inventory, of $20.3 million.

Net cash flows provided by operating activities for the nine months ended September 30, 2019 was $177.7 million.

Net cash flows provided by operating activities for the nine months ended September 30, 2019 resulted from net income of $106.6 million, depreciation and amortization of $81.3 million, share-based compensation of $15.4 million and a decrease in noncash working capital accounts of $25.3 million.

Investing Activities

Net cash and cash equivalents used in investing activities was $34.0 million for the six months ended June 30, 2020.

Net cash and cash equivalents used in investing activities was primarily due to the purchase of property, plant and equipment of $30.7 million and the additional investment by the Company’s subsidiary ERIS in Yea-Shin of $6.1 million, bring ERIS’ ownership of Yea-Shin to approximately 99.5%.

These outflows of cash were partially offset by net proceeds from the maturity of short-term investments of $5.1 million for the six months ended June 30, 2020.

Net cash and cash equivalents used in investing activities was $82.5 million for the six months ended June 30, 2019.

Net cash and cash equivalents used in investing activities was primarily due to the purchase of property, plant and equipment of $50.7 and the acquisition of GFAB for $33.2 million during the six months ended June 30, 2019.

Net cash and cash equivalents used in investing activities was $51.8 million for the nine months ended September 30, 2020.

Net cash and cash equivalents used in investing activities for the nine months ended September 30, 2020 was primarily due to the purchase of property, plant and equipment of $48.5 million and the additional investment by the Company’s subsidiary ERIS in Yea-Shin of $6.1 million, bring ERIS’ ownership of Yea-Shin to approximately 99.5%.

These outflows of cash were partially offset by net proceeds from the maturity of short-term investments of $1.9 million for the nine months ended September 30, 2020.

Net cash and cash equivalents used in investing activities was $110.2 million for the nine months ended September 30, 2019.

Net cash and cash equivalents used in investing activities was primarily due to the purchase of property, plant and equipment of $76.1 and the acquisition of GFAB for $33.2.

Financing Activities

Net cash and cash equivalents provided by financing activities was $241.8 million for the six months ended June 30, 2020.

Net cash provided by financing activities in the six months ended June 30, 2020 consisted primarily of $249.1 million, net advances on our debt facilities, including $200.0 million in anticipation of closing the LSC acquisition later this year partially offset by taxes paid on net share settlements of $5.4 million.

Net cash and cash equivalents used in financing activities was $33.0 million for the six months ended June 30, 2019.

Net cash used in financing activities in the six months ended June 30, 2019 consisted primarily of $42.1 million, net repayments of long-term debt, taxes paid on net share settlements of $1.6 million and dividend distributions to noncontrolling interests of $1.2 million.

Net cash and cash equivalents provided by financing activities was $294.7 million for the nine months ended September 30, 2020.

Net cash provided by financing activities in the nine months ended September 30, 2020 consisted primarily of $305.7 million, net advances on our debt facilities, including $305.0 million in anticipation of closing the LSC acquisition later this year, partially offset by taxes paid on net share settlements of $8.2 million.

Net cash and cash equivalents used in financing activities was $87.0 million for the nine months ended September 30, 2019.

Net cash used in financing activities in the nine months ended September 30, 2019 consisted primarily of $94.7 million net repayments of long-term debt, taxes paid on net share settlements of $4.4 million and dividend distributions to noncontrolling interests of $2.6 million.

These uses of cash were partially offset by inflows of $7.2 million related to stock option exercises and $6.9 million of net increases in lines of credit and short-term debt.

Use of Derivative Instruments and Hedging

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The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements.

To accomplish this objective, the Company primarily uses interest rate swaps, including interest rate collars, as part of its interest rate risk management strategy.

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

To accomplish this objective, the Company primarily uses interest rate swaps, including interest rate collars,

as part of its interest rate risk management strategy.

Hedges of Foreign Currency Risk

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Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and in other reports we file with the SEC from time to time, that could cause actual results to differ materially from those anticipated by our management.

The PSLRA provides certain “safe harbor” provisions for forward-looking statements.

The PSLRA provides

certain “safe harbor” provisions for forward-looking statements.

All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the PSLRA.

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We may ultimately not be successful in overcoming these risks or any other problems encountered in connection with acquisitions.

If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal control over financial reporting, we may not be able to report our financial result s accurately or detect fraud, which could harm our business and the trading price of our Common Stock.

If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal control over financial reporting, we may not be able to report our financial results accurately or detect fraud, which could harm our business and the trading price of ou r Common Stock.

Terrorist attacks, or threats or occurrences of other terrorist activities, whether in the U.S.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis