What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-05 · 185 added, 185 removed, 139 unchanged (73% of the section changed)

23 unchanged sentences

the Industrial Processing

Overview (continued)

segment consists of our wood processing and stock-preparation product lines (excluding our baling products);

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Financial information for 2019 has been recast to conform to the new segment presentation.

A description of each segment follows.

A description of each segment is as follows:

• Flow Control – Custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, and other industrial sectors.

Our products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems.

Overview (continued)

• Industrial Processing – Equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products, and alternative fuel industries, among others.

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In March 2020, the World Health Organization designated the novel coronavirus as a global pandemic (COVID-19).

From the onset of the outbreak, we have focused our efforts on:

In response to the ongoing COVID-19 pandemic, we continue to focus our efforts on:

• protecting the health and safety of our employees though precautionary measures, including working remotely when employees are not required to be physically present, social distancing, wearing face coverings, adding safety and hygiene protocols within our facilities, restricting travel and other safeguards;

• as a critical infrastructure company, serving the needs and expectations of our customers;

working closely with our supply chain to minimize any potential disruption;

• working closely with our supply chain to minimize potential disruptions;

• preserving our liquidity position.

The COVID-19 pandemic has resulted in significant worldwide economic disruption and has adversely affected our bookings and results of operations in the second quarter of 2020 primarily due to delayed or reduced capital spending by our customers, as well as customer-requested delays on certain capital projects and service work.

We also experienced a moderate decline in demand for our parts and consumables products as the pandemic continued.

To offset these adverse effects on our business, we decreased discretionary spending in such areas as travel-related costs and incentive compensation, applied for government-sponsored COVID-19 employee retention programs, and executed restructuring actions to reduce payroll-related costs at certain of our operations.

We expect the impact of COVID-19 on our business to continue in the third quarter and possibly for the remainder of the year.

Consolidated bookings decreased 24% to $133.0 million in the second quarter of 2020 compared to $174.0 million in the second quarter of 2019, which included a 2% decrease from the unfavorable effect of foreign currency translation.

Our business outlook by segment, including updates on the impact of COVID-19, is as follows:

Flow Control – Bookings decreased 19% in the second quarter of 2020 compared with the second quarter of 2019.

Bookings for capital equipment declined due to delayed or reduced capital spending by our customers, as well as delayed repair work as a result of COVID-19.

Bookings for parts and consumables products also declined as a result of decreased demand from industrial customers due to COVID-19 related production downtime, shutdowns and visitation restrictions at many customer facilities, while demand from our packaging, food processing, and tissue customers remained relatively stable.

Industrial Processing – Bookings decreased 29% in the second quarter of 2020 compared with the second quarter of 2019.

Capital equipment bookings at our European stock-preparation operations and parts and consumables bookings at our North American and European stock-preparation operations declined due to a reduction in customer spending as a result of COVID-19.

Additionally, our North American wood processing operations experienced decreased demand for our timber-harvesting equipment, as well as overall reduced capital spending by our customers largely due to the impact of COVID-19.

Orders for parts and consumables products at our North American wood processing operations

The COVID-19 pandemic has resulted in significant worldwide economic disruption and adversely affected our bookings and results of operations primarily due to delayed or reduced spending by our customers, as well as customer-requested delays on certain capital projects and service work.

While our businesses continue to be impacted by COVID-19, we experienced an 8% sequential increase in bookings in the third quarter of 2020 compared to the second quarter of 2020, mainly attributable to improved capital equipment bookings at our Industrial Processing segment's wood processing business.

For the fourth quarter of 2020, we expect a sequential increase in capital equipment bookings, and our parts and consumables bookings to remain stable as our customers perform year-end maintenance on their equipment.

Consolidated bookings decreased 16% to $143.3 million in the third quarter of 2020 compared to $170.9 million in the third quarter of 2019, offset by a 1% increase from the favorable effect of foreign currency translation and an acquisition.

Our business outlook by segment, including an update on the impact of COVID-19, is as follows:

• Flow Control – Bookings decreased 16% in the third quarter of 2020 compared with the third quarter of 2019.

Bookings for capital equipment at our North American and European operations continue to be negatively impacted by delayed or reduced capital spending by our customers.

Bookings for parts and consumables products at our North American and European operations declined slightly as a result of decreased demand from industrial customers due to production downtime, shutdowns and visitation restrictions at customer facilities related to COVID-19, while demand from our packaging, food processing, and tissue customers remained relatively stable.

• Industrial Processing – Bookings decreased 20% in the third quarter of 2020 compared with the third quarter of 2019.

Bookings at our stock-preparation business declined primarily due to delays or reductions in capital equipment spending by our customers as a result of COVID-19 and uncertainty in the Asian market surrounding the response to China's recovered paper import restrictions.

The decline at our stock-preparation business was partially offset by increased capital equipment bookings at our wood processing business due to a robust U.S.

housing market and a rebound in lumber, oriented strand board and plywood prices, which has driven increased capital investment by our customers.

Our wood processing business continues to experience steady bookings for parts and consumables products due to an improved U.S.

housing market and higher demand for wood-based products, which have increased mill run rates resulting in higher parts consumption by our customers.

• Material Handling – Bookings decreased 9% in the third quarter of 2020 compared with the third quarter of 2019.

Demand for our conveying and vibratory equipment continues to be negatively impacted by reduced customer spending primarily as a result of COVID-19 shutdowns and visitation restrictions.

Despite a slight decline in bookings in the third quarter of 2020 compared to a strong third quarter of 2019, orders at our baler business improved significantly from the first two quarters of 2020 as a result of increased economic activity and eased COVID-19 restrictions in Europe in the third quarter, in addition to orders from new markets.

Overview (continued)

were impacted by idled mills in the early part of the quarter, but strengthened during the latter part of the quarter due to rebounds in lumber prices and improved U.S.

housing starts, which increased mill run rates and parts consumption.

Material Handling – Bookings decreased 20% in the second quarter of 2020 compared with the second quarter of 2019.

Demand for our conveying and vibratory equipment and balers declined due to reduced customer spending primarily as a result of COVID-19 related shutdowns and visitation restrictions.

Our liquidity position as of June 27, 2020 consisted of over $57 million of cash and cash equivalents, approximately $151 million of unused available borrowing capacity, and $265 million of uncommitted borrowing capacity.

We currently do not have any material mandatory principal payments on our debt obligations until 2023.

We continue to conserve cash by reducing operating expenses and capital spending and managing working capital.

We intend to utilize legislative provisions related to COVID-19, such as employee retention programs and deferral of certain tax payments, where available and appropriate.

To mitigate the adverse effects of the pandemic on our business, we continue to manage discretionary spending in such areas as capital expenditures and travel-related costs, utilize government employee retention assistance programs, and execute restructuring actions to reduce payroll-related costs at certain of our operations.

During the third quarter of 2020, we received benefits from government employee retention assistance programs of $2.8 million.

We expect the benefits received from these programs to decrease in the fourth quarter of 2020.

Our liquidity position as of September 26, 2020 consisted of over $53 million of cash and cash equivalents, $155 million of available borrowing capacity, and $265 million of uncommitted borrowing capacity.

We do not have any mandatory principal payments on our long-term debt obligations until 2023.

We continue to evaluate the impact of COVID-19 on our business and will take actions that are in the best interests of our employees, customers, and stakeholders or as mandated by governmental authorities.

The impact on our results of operations, financial condition and cash flows will depend on certain developments, including the duration of the pandemic and its impact on our customers and suppliers, which are uncertain at this time.

While our global presence and the diversity of our products have provided some stability during the COVID-19 pandemic, there is continued uncertainty surrounding the trajectory of the pandemic which has been impacted by a recent resurgence of infections in many regions of the world, the timing of recovery in the markets in which we operate, and the resulting impact on our results of operations, financial condition and cash flows.

Accordingly, we cannot predict the extent of the impact that COVID-19 may have on our business for the remainder of fiscal 2020.

For more information on risks related to health epidemics to our business, including COVID-19, please see Risk Factors included in Part II, Item 1A , of this report.

For more information on risks related to health epidemics to our business, including COVID-19, please see Part I, Item 1A.

Risk Factors , included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, as further amended in subsequent filings with the SEC.

In 2018, the United States began imposing tariffs on certain imports from China, which has and will continue to increase the cost of some of the equipment that we import.

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For more information on risks associated with our global operations, including tariffs, please see Part I, Item 1A.

Risk Factors , included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, as further amended in Part II, Item 1A, within this report and as may be further amended and/or restated in subsequent filings with the SEC.

Risk Factors , included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, as further amended in subsequent filings with the SEC.

International Sales and Foreign Currency

13 unchanged sentences

SMH, which is included in our Material Handling segment, is a leading provider of conveying and vibratory equipment and systems to various process industries, including mining, aggregates, food processing, packaging, and pulp and paper.

This acquisition extended our current product portfolio and we expect that it will strengthen SMH's relationships in the pulp and paper markets.

Overview (continued)

Application of Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosure of contingent liabilities.

The preparation of these consolidated financial statements requires us to make estimates and

Overview (continued)

assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosure of contingent liabilities.

Our critical accounting policies are defined as those that entail significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions.

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Results of Operations

Second Quarter 2020 Compared With Second Quarter 2019

The following table presents the change in revenue by segment between the second quarters of 2020 and 2019 , and those changes excluding the effect of foreign currency translation and an acquisition which we refer to as change in organic revenue.

Third Quarter 2020 Compared With Third Quarter 2019

The following table presents the change in revenue by segment between the third quarters of 2020 and 2019, and those changes excluding the effect of foreign currency translation and an acquisition which we refer to as change in organic revenue.

The presentation of the change in organic revenue is a non-GAAP measure.

1 unchanged sentence

This non-GAAP measure should not be considered superior to or a substitute for the corresponding GAAP measure.

Revenue by segment in the second quarters of 2020 and 2019 was as follows:

Three Months Ended

Currency Translation

Change in Organic Revenue

(In thousands, except percentages)

Total (Decrease) Increase

(Decrease) Increase

Revenue by segment in the third quarters of 2020 and 2019 was as follows:

Three Months Ended Currency Translation Acquisition Change in Organic Revenue

(In thousands, except percentages) September 26,

2020 September 28,

2019 Total Decrease % Change Decrease % Change

Flow Control $ 56,815 $ 62,375 $ (5,560) (9) % $ (260) $ — $ (5,300) (8) %

Industrial Processing 62,086 74,229 (12,143) (16) % 411 752 (13,306) (18) %

Material Handling

35,709 36,900 (1,191) (3) % 498 — (1,689) (5) %

Consolidated Revenue $ 154,610 $ 173,504 $ (18,894) (11) % $ 649 $ 752 $ (20,295) (12) %

Consolidated revenue in the second quarter of 2020 decreased 14%, while consolidated organic revenue declined 12%, due to lower revenue at our Flow Control and Industrial Processing segments as described below.

We expect a sequential decline in revenue in the third quarter of 2020, largely driven by the impact of the COVID-19 pandemic.

Revenue at our Flow Control segment decreased 21% in the second quarter of 2020, while organic revenue declined 18%.

Organic revenue from capital equipment at most of our operations declined primarily due to customer reductions in capital spending, as well as customer-requested delays in installation and repairs, due to COVID-19.

Additionally, the 2019 period included relatively high demand for capital equipment at our North American operations.

Organic revenue was also impacted by a decline in demand for parts and consumables at our North American and European operations due to COVID-19 related production downtime and shutdowns at our customers, as well as visitation restrictions at many customer facilities.

Consolidated revenue in the third quarter of 2020 decreased 11%, while consolidated organic revenue declined 12%, principally due to lower capital equipment revenue at our Industrial Processing and Flow Control segments as described below.

Revenue at our Flow Control segment decreased 9% in the third quarter of 2020, while organic revenue declined 8%.

Organic revenue declined primarily due to decreased demand for capital equipment at our North American operations, which was negatively impacted by reduced customer spending and customer-requested delays as a result of COVID-19.

Revenue at our Industrial Processing segment decreased 16% in the third quarter of 2020, while organic revenue declined 18%.

Organic revenue at our stock-preparation business was adversely affected by decreased demand for capital equipment at our Chinese and European operations due to reduced or delayed customer spending as a result of COVID-19, and at our Chinese operations due to uncertainty in the Asian market surrounding the response to China's recovered paper import restrictions.

Additionally, organic revenue for parts and consumables products declined at our European operations as a result of unusually high demand in the 2019 period and at our North American operations due to reduced customer spending as a result of COVID-19.

Organic revenue at our wood processing business also decreased due to lower capital equipment revenue at our North American operations related to changes in certain end markets and, to a lesser extent, reduced spending as a result of COVID-19.

These decreases were offset in part by higher parts and consumables revenue at our North American operations driven by increased mill run rates resulting in higher parts consumption by our customers.

Results of Operations (continued)

Revenue at our Industrial Processing segment decreased 14% in the second quarter of 2020, while organic revenue declined 12%.

Organic revenue at our North American wood processing operations decreased due to the weakness in the lumber and oriented strand board industries, primarily for capital equipment, and was further impacted by reduced spending as a result of COVID-19.

Organic revenue at our stock-preparation business was negatively impacted by decreased demand for capital equipment at our Chinese operations due to overcapacity in the Asian markets, and decreased demand for parts and consumables at our North American operations due to reduced customer spending as a result of COVID-19.

These declines were partially offset by increased organic revenue from capital equipment at our North American stock-preparation operations due to several large orders that were received prior to the onset of the pandemic, and increased demand for parts and consumables at our Chinese operations due to the reopening of businesses we service.

Revenue and organic revenue at our Material Handling segment were relatively unchanged in the second quarter of 2020.

Organic revenue from our conveying and vibratory equipment business increased primarily due to capital equipment revenues associated with a large order that was received in late 2019, partially offset by a decline in demand for parts and consumables due to a reduction in customer spending primarily as a result of COVID-19 related shutdowns and visitation restrictions.

Organic revenue from our baler business declined due to a continued weak European economy, which was further impacted by COVID-19.

Revenue at our Material Handling segment decreased 3% in the third quarter of 2020, while organic revenue declined 5%.

Organic revenue declined due to a decrease in demand for our parts and consumables products primarily at our conveying and vibratory equipment business related to a reduction in customer spending as a result of shutdowns and visitation restrictions related to COVID-19.

A decrease in organic revenue from capital equipment at our baler business due to a weak European economy, compounded by the effect of COVID-19, was more than offset by an increase in organic revenue from capital equipment at our conveying and vibratory equipment business primarily due to revenue from a large order received in late 2019.

Gross Profit Margin

Gross profit margin by segment in the second quarters of 2020 and 2019 was as follows:

Gross profit margin by segment in the third quarters of 2020 and 2019 was as follows:

Three Months Ended

September 26,

2020 September 28,

Flow Control 52.9 % 52.9 %

Industrial Processing 43.7 % 38.7 %

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Consolidated Gross Profit Margin 44.2 % 42.8 %

Consolidated gross profit margin increased in the second quarter of 2020 primarily due to COVID-19 government-sponsored employee retention incentives of $1.3 million, which increased consolidated gross profit margin in the second quarter of 2020 by 0.8 percentage points, and the amortization of acquired profit in inventory related to the SMH acquisition of $1.2 million, which lowered consolidated gross profit margin in the second quarter of 2019 by 0.7 percentage points.

Gross profit margin at our Flow Control segment increased in the second quarter of 2020 due to improved margins on capital equipment, an increased proportion of higher-margin parts and consumables revenue, and employee retention incentives.

Gross profit margin at our Industrial Processing segment increased in the second quarter of 2020 due to employee retention incentives of $0.9 million, which improved the gross profit margin by 1.4 percentage points.

Gross profit margin at our Material Handling segment in the second quarter of 2019 was negatively affected by $1.2 million of amortization of acquired profit in inventory, which lowered the gross profit margin by 3.5 percentage points.

Excluding the impact of amortization of acquired profit in inventory in the 2019 period, the gross profit margin decreased in the 2020 period primarily due to an increased proportion of lower-margin capital equipment revenue at our conveying and vibratory equipment business.

Consolidated gross profit margin increased in the third quarter of 2020 primarily due to benefits received from government employee retention assistance programs of $1.6 million, which increased consolidated gross profit margin in the third quarter of 2020 by 1.1 percentage points.

Gross profit margin at our Flow Control segment was unchanged in the third quarter of 2020 compared to the third quarter of 2019.

An improved margin due to an increased proportion of higher-margin parts and consumables revenue was offset by a lower margin on capital equipment revenue.

Gross profit margin at our Industrial Processing segment increased in the third quarter of 2020 due to benefits received from government employee retention assistance programs of $1.4 million, which improved gross profit margin by 2.3 percentage points.

Gross profit margin also improved in the third quarter of 2020 due to an increased proportion of higher-margin parts and consumables revenue at our wood processing business and a favorable change in product mix for capital equipment revenue at our stock-preparation business.

Gross profit margin at our Material Handling segment decreased in the third quarter of 2020 primarily due to lower margins on our capital equipment revenue and decreased manufacturing efficiency related to lower production volumes at our baler business, as well as an increased proportion of lower-margin capital equipment revenue at our conveying and vibratory equipment business.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses by segment in the second quarters of 2020 and 2019 were as follows:

Selling, general, and administrative (SG&A) expenses by segment in the third quarters of 2020 and 2019 were as follows:

Three Months Ended

(In thousands, except percentages)

(In thousands, except percentages) September 26,

2020 % of Revenue September 28,

2019 % of Revenue Decrease % Change

Flow Control $ 15,136 27 % $ 16,942 27 % $ (1,806) (11)%

Industrial Processing 13,759 22 % 14,538 20 % (779) (5)%

Material Handling 7,955 22 % 8,564 23 % (609) (7)%

Corporate 7,003 N/A 7,053 N/A (50) (1)%

Consolidated SG&A Expenses $ 43,853 28 % $ 47,097 27 % $ (3,244) (7)%

Consolidated SG&A expenses as a percentage of revenue increased to 28% in the third quarter of 2020 compared with 27% in the third quarter of 2019 due to lower revenues in the 2020 period.

Consolidated SG&A expenses decreased $3.2 million in the third quarter of 2020 compared with the third quarter of 2019 primarily due to reduced travel-related costs of $2.0 million and benefits received from government employee retention assistance programs of $1.0 million.

Results of Operations (continued)

Consolidated SG&A expenses as a percentage of revenue increased to 29% in the second quarter of 2020 compared with 27% in the second quarter of 2019 due to lower revenues in the 2020 period.

Consolidated SG&A expenses decreased $3.4 million in the second quarter of 2020 compared with the second quarter of 2019 primarily due to a reduction in travel-related costs of $3.1 million.

In addition, SG&A expenses decreased due to a favorable effect of foreign currency translation of $1.1 million and COVID-19 government-sponsored employee retention incentives of $0.8 million, which were offset in part by acquisition costs in the second quarter of 2020.

SG&A expenses as a percentage of revenue at our Flow Control segment increased to 31% in the second quarter of 2020 compared with 26% in the second quarter of 2019 due to lower revenues in the 2020 period.

SG&A expenses decreased in the second quarter of 2020 compared with the second quarter of 2019 due to reduced travel-related costs of $1.1 million and a favorable effect of foreign currency translation of $0.6 million.

These decreases in SG&A expenses were partially offset by incremental currency transaction losses of $0.6 million, primarily on Euro and U.S.

dollar-denominated cash at our Swedish and Mexican operations.

SG&A expenses as a percentage of revenue at our Industrial Processing segment increased to 23% in the second quarter of 2020 compared with 20% in the second quarter of 2019 due to lower revenues in the 2020 period.

SG&A expenses decreased in the second quarter of 2020 compared to the second quarter of 2019 due to reduced travel-related costs of $1.2 million and a favorable effect of foreign currency translation of $0.4 million.

These decreases were offset in part by acquisition costs of $0.4 million in the second quarter of 2020.

SG&A expenses as a percentage of revenue at our Material Handling segment decreased to 23% in the second quarter of 2020 compared with 26% in the second quarter of 2019.

The second quarter of 2019 included $0.3 million of amortization of acquired backlog associated with the SMH acquisition.

Excluding the amortization of acquired backlog, SG&A expenses as a percentage of revenue decreased to 23% in the second quarter of 2020 from 25% in the second quarter of 2019 primarily due to reduced travel-related costs of $0.7 million.

SG&A expenses at Corporate decreased in the second quarter of 2020 compared with the second quarter of 2019 primarily due to lower incentive compensation cost.

SG&A expenses as a percentage of revenue at our Flow Control segment was 27% in both the third quarters of 2020 and 2019.

SG&A expenses decreased in the third quarter of 2020 compared with the third quarter of 2019 principally due to reduced travel-related costs of $0.6 million, as well as lower payroll-related costs as a result of restructuring actions taken in the first half of 2020 and benefits received from government employee retention assistance programs.

SG&A expenses as a percentage of revenue at our Industrial Processing segment increased to 22% in the third quarter of 2020 compared with 20% in the third quarter of 2019 due to lower revenues in the 2020 period.

SG&A expenses decreased in the third quarter of 2020 compared with the third quarter of 2019 principally due to reduced travel-related costs of $0.7 million and benefits received from government employee retention assistance programs.

SG&A expenses as a percentage of revenue at our Material Handling segment decreased slightly to 22% in the third quarter of 2020 compared with 23% in the third quarter of 2019.

SG&A expenses decreased in the third quarter of 2020 compared with the third quarter of 2019 principally due to reduced travel-related costs.

SG&A expenses at Corporate were relatively unchanged in the third quarter of 2020 compared with the third quarter of 2019.

Restructuring Costs

Restructuring costs of $0.5 million in the second quarter of 2020 represent severance costs for 30 employees within our Flow Control segment related to a restructuring plan implemented during the quarter.

Additionally, we reduced our workforce by 21 employees within our Industrial Processing segment with no associated severance costs.

We expect annualized payroll-related savings as a result of these actions of approximately $3.7 million, including $2.4 million at our Flow Control segment and $1.3 million at our Industrial Processing segment.

These annualized savings consist of $1.8 million for cost of sales and $1.9 million for operating expenses.

We may incur additional restructuring costs as we continue to evaluate the impact of COVID-19 and the resulting global economic downturn on our business.

Restructuring costs of $0.5 million, consisting of $0.3 million in our Flow Control segment and $0.2 million in our Industrial Processing segment, in the third quarter of 2020 represent severance costs for an additional 24 employees.

See R es tructuring Costs in Results of Operations, "First Nine Months 2020 Compared With First Nine Months 2019" for further discussion related to this restructuring plan.

Interest Expense

Interest expense decreased to $1.9 million in the second quarter of 2020 from $3.6 million in the second quarter of 2019 due to a lower weighted-average interest rate and lower outstanding debt.

In July 2020, we prepaid the outstanding principal balance of $18.9 million on our Real Estate Loan using borrowings available under our revolving credit facility.

We expect a decrease in interest expense in the second half of 2020 partially due to the lower interest rate on our revolving credit facility.

Interest expense decreased to $1.7 million in the third quarter of 2020 from $3.1 million in the third quarter of 2019 due to a lower weighted-average interest rate and lower outstanding debt.

At the end of the third quarter of 2020, our leverage ratio on our credit facility decreased to 1.88, which will have the effect of reducing the applicable margin on the outstanding debt under our revolving credit facility by 25 basis points in future quarters.

Provision for Income Taxes

Our provision for income taxes increased to $4.5 million in the second quarter of 2020, or 28% of pre-tax income, from $3.1 million in the second quarter of 2019, or 16% of pre-tax income.

The effective tax rate for the second quarter of 2020 was higher than our statutory tax rate of 21% primarily due to nondeductible expenses, the distribution of our worldwide earnings, state taxes, and tax expense associated with Global Intangible Low-Taxed Income (GILTI) provisions.

These increases in tax expense were offset in part by net excess income tax benefits from stock-based compensation arrangements.

The effective tax rate for the second quarter of 2019 was lower than our statutory tax rate of 21% primarily due to a net tax benefit of 6% of pre-tax income associated with foreign exchange losses and tax costs recognized upon our repatriation of certain previously-taxed foreign earnings and a tax benefit related to the net excess income tax benefits from stock-based compensation arrangements.

These tax benefits were offset in part by tax expense related to nondeductible expenses, GILTI, the distribution of our worldwide earnings, and unrecognized tax benefits.

Our provision for income taxes decreased to $4.7 million in the third quarter of 2020 from $5.2 million in the third quarter of 2019 and represented 24% of pre-tax income in both periods.

The effective tax rate of 24% in the third quarter of 2020 was higher than our statutory rate of 21% primarily due to nondeductible expenses and the distribution of our worldwide earnings.

This incremental tax expense was offset in part by a tax benefit related to final Global Intangible Low-Taxed Income (GILTI) regulations issued by the U.S.

Treasury Department during the third quarter of 2020 on an election to provide a high-tax exception to the GILTI tax retroactive to 2018.

The effective tax rate of 24% in the third quarter of 2019 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, tax expense associated with GILTI, nondeductible expenses, state taxes, and the cost of repatriating the earnings of certain foreign subsidiaries.

This incremental tax expense was offset in part by a decrease in tax related to the reversal of tax reserves associated with uncertain tax positions and the net excess income tax benefits from stock-based compensation arrangements.

Net income decreased $1.2 million to $15.0 million in the third quarter of 2020 from $16.2 million in the third quarter of 2019 due to a $3.2 million decrease in operating income, offset by a decrease in interest expense of $1.4 million and a decrease in provision for income taxes of $0.5 million (see discussions above for further details).

Results of Operations (continued)

Net income decreased $4.7 million to $11.7 million in the second quarter of 2020 from $16.4 million in the second quarter of 2019 due to a $5.0 million decrease in operating income and a $1.3 million increase in provision for income taxes, offset in part by a decrease in interest expense of $1.6 million (see discussions above for further details).

First Six Months 2020 Compared With First Six Months 2019

The following table presents changes in revenue by segment between the first six months of 2020 and 2019 , and those changes excluding the effect of foreign currency translation and an acquisition which we refer to as change in organic revenue.

First Nine Months 2020 Compared With First Nine Months 2019

The following table presents changes in revenue by segment between the first nine months of 2020 and 2019, and those changes excluding the effect of foreign currency translation and an acquisition which we refer to as change in organic revenue.

The presentation of the change in organic revenue is a non-GAAP measure.

1 unchanged sentence

This non-GAAP measure should not be considered superior to or a substitute for the corresponding GAAP measure.

Revenue by segment in the first six months of 2020 and 2019 was as follows:

Six Months Ended

Currency Translation

Change in Organic Revenue

(In thousands, except percentages)

Total Decrease

(Decrease) Increase

Revenue by segment in the first nine months of 2020 and 2019 was as follows:

Nine Months Ended Currency Translation Acquisition Change in Organic Revenue

(In thousands, except percentages) September 26,

2020 September 28,

2019 Total Decrease % Change Decrease % Change

Flow Control $ 165,329 $ 188,792 $ (23,463) (12) % $ (3,694) $ — $ (19,769) (10) %

Industrial Processing 192,468 222,899 (30,431) (14) % (2,013) 957 (29,375) (13) %

Material Handling

108,800 110,294 (1,494) (1) % (178) — (1,316) (1) %

Consolidated Revenue $ 466,597 $ 521,985 $ (55,388) (11) % $ (5,885) $ 957 $ (50,460) (10) %

Consolidated revenue in the first six months of 2020 decreased by 10%, while consolidated organic revenue declined 9% primarily due to lower revenue at our Industrial Processing and Flow Control segments as described below.

Revenue from our Flow Control segment decreased 14% in the first six months of 2020, while organic revenue declined 11%.

Consolidated revenue in the first nine months of 2020 decreased by 11%, while consolidated organic revenue declined 10% due to lower capital equipment revenue at our Industrial Processing and Flow Control segments and lower parts and consumables revenue at all our segments as described below.

Revenue from our Flow Control segment decreased 12% in the first nine months of 2020, while organic revenue declined 10%.

Organic revenue declined due to decreased demand for capital equipment at our North American and, to a lesser extent, our European operations due to reduced customer spending and customer-requested delays as a result of COVID-19.

Additionally, the 2019 period included relatively high demand for capital equipment at our North American operations.

Organic revenue was also impacted by a decline in demand for parts and consumables at our North American and European operations due to COVID-19 related downtimes and shutdowns at our customers, as well as visitation restrictions at many customer facilities.

Revenue from our Industrial Processing segment decreased 12% in the first six months of 2020, while organic revenue declined by 11%.

Organic revenue at our stock-preparation business was negatively impacted by decreased demand for parts and consumables at our North American operations, and lower demand for capital equipment at our European and Chinese operations due in part to reduced customer spending as a result of COVID-19.

Revenue and organic revenue at our Material Handling segment were relatively unchanged in the first six months of 2020.

Organic revenue from our conveying and vibratory equipment business increased primarily due to capital equipment revenues associated with a large order that was received in late 2019, partially offset by a decline in demand for parts and consumables due to a reduction in customer spending largely as a result of COVID-19 shutdowns and visitation restrictions.

Organic revenue from our baler business declined due to a continued weak European economy, which was further impacted by COVID-19.

Organic revenue was also impacted by a decline in demand for parts and consumables at our North American operations and, to a lesser extent, our European operations due to downtimes and shutdowns, as well as visitation restrictions at many customer facilities related to COVID-19.

Revenue from our Industrial Processing segment decreased 14% in the first nine months of 2020, while organic revenue declined by 13%.

Organic revenue at our stock-preparation business was negatively impacted by decreased demand for capital equipment at our Chinese operations due to reduced or delayed customer spending as a result of COVID-19 and uncertainty in the Asian market surrounding the response to China's recovered paper import restrictions.

Additionally, organic revenue from parts and consumables at our North American operations and capital equipment at our European operations decreased due to reduced customer spending as a result of COVID-19.

Organic revenue from capital equipment at our North American wood processing operations decreased due to changes in certain end markets and, to a lesser extent, reduced spending as a result of COVID-19.

Revenue and organic revenue at our Material Handling segment decreased 1% in the first nine months of 2020.

Organic revenue from our parts and consumables products at our conveying and vibratory equipment business decreased due to a reduction in customer spending primarily as a result of shutdowns and visitation restrictions related to COVID-19.

Results of Operations (continued)

Gross Profit Margin

Gross profit margin by segment in the first six months of 2020 and 2019 was as follows:

Six Months Ended

Gross profit margin by segment in the first nine months of 2020 and 2019 was as follows:

Nine Months Ended

September 26,

2020 September 28,

Flow Control 53.1 % 51.7 %

Industrial Processing 41.0 % 39.0 %

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Consolidated Gross Profit Margin 43.5 % 42.0 %

Consolidated gross profit margin increased in the first six months of 2020 largely due to the amortization of acquired profit in inventory related to the SMH acquisition of $3.5 million that lowered consolidated gross profit margin in the first six months of 2019 by 1.0 percentage points, and COVID-19 government-sponsored employee retention incentives received in the second quarter of 2020 of $1.3 million, which increased consolidated gross profit margin by 0.4 percentage points.

Gross profit margin at our Flow Control segment increased in the first six months of 2020 due to improved margins on capital equipment and an increased proportion of higher-margin parts and consumables revenue.

Gross profit margin at our Industrial Processing segment increased in the first six months of 2020 primarily due to employee retention incentives of $0.9 million, which improved the gross profit margin by 0.7 percentage points.

Gross profit margin at our Material Handling Systems segment was relatively unchanged in the first six months of 2020 compared to the 2019 period after excluding the effect of amortization of acquired profit in inventory of $3.5 million, which lowered the gross profit margin in 2019 by 4.8 percentage points.

Consolidated gross profit margin increased in the first nine months of 2020 largely due to the amortization of acquired profit in inventory of $3.5 million related to the SMH acquisition that lowered consolidated gross profit margin in the first nine months of 2019 by 0.7 percentage points, and benefits received in the second and third quarters of 2020 from government employee retention assistance programs of $2.9 million, which increased consolidated gross profit margin in the first nine months of 2020 by 0.6 percentage points.

Gross profit margin at our Flow Control segment increased in the first nine months of 2020 due to an increased proportion of higher-margin parts and consumables revenue and an improved margin on capital equipment revenue.

Gross profit margin at our Industrial Processing segment increased in the first nine months of 2020 primarily due to benefits received from government employee retention assistance programs of $2.4 million, which improved the gross profit margin by 1.2 percentage points, as well as an increased proportion of higher-margin parts and consumables revenue at our wood processing business.

Gross profit margin at our Material Handling Systems segment in the first nine months of 2019 was negatively affected by the amortization of acquired profit in inventory of $3.5 million, which lowered the gross profit margin in 2019 by 3.2 percentage points.

The remaining 1.1 percentage point difference was due to lower gross margins on our capital equipment as a result of an unfavorable change in product mix.

Selling, General, and Administrative Expenses

SG&A expenses in the first six months of 2020 and 2019 were as follows:

Six Months Ended

(In thousands, except percentages)

SG&A expenses in the first nine months of 2020 and 2019 were as follows:

Nine Months Ended

(In thousands, except percentages) September 26,

2020 % of Revenue September 28,

2019 % of Revenue Decrease % Change

Flow Control $ 46,876 28 % $ 51,324 27 % $ (4,448) (9)%

Industrial Processing 42,499 22 % 44,794 20 % (2,295) (5)%

Material Handling 24,730 23 % 27,783 25 % (3,053) (11)%

Corporate 20,413 N/A 20,982 N/A (569) (3)%

Consolidated SG&A Expenses $ 134,518 29 % $ 144,883 28 % $ (10,365) (7)%

Consolidated SG&A expenses as a percentage of revenue increased to 29% in the first six months of 2020 compared with 28% in the first six months of 2019 due to lower revenues in the 2020 period.

Consolidated SG&A expenses decreased $7.1 million in the first six months of 2020 compared with the first six months of 2019 due to reduced travel-related costs of $3.7 million, a favorable effect of foreign currency translation of $1.8 million, lower acquisition-related costs of $1.7 million, and COVID-19 government-sponsored employee retention incentives received in the second quarter of 2020 of $0.8 million.

SG&A expenses as a percentage of revenue at our Flow Control segment increased to 29% in the first six months of 2020 compared with 27% in the first six months of 2019 due to lower revenues in the 2020 period.

SG&A expenses decreased in the first six months of 2020 compared with the first six months of 2019 due to reduced travel-related costs of $1.5 million and a favorable effect of foreign currency translation of $1.0 million.

SG&A expenses as a percentage of revenue at our Industrial Processing segment increased to 22% in the first six months of 2020 compared with 20% in the first six months of 2019 due to lower revenues in the 2020 period.

These decreases were partially offset by acquisition costs of $0.4 million.

Consolidated SG&A expenses as a percentage of revenue increased to 29% in the first nine months of 2020 compared with 28% in the first nine months of 2019 due to lower revenues in the 2020 period.

Consolidated SG&A expenses decreased $10.4 million in the first nine months of 2020 compared with the first nine months of 2019 due to reduced travel-related costs of $5.7 million, benefits received from government employee retention assistance programs of $1.8 million, a favorable effect of foreign currency translation of $1.5 million, and lower acquisition-related costs of $1.3 million.

SG&A expenses as a percentage of revenue at our Flow Control segment increased to 28% in the first nine months of 2020 compared with 27% in the first nine months of 2019 due to lower revenues in the 2020 period.

SG&A expenses decreased in the first nine months of 2020 compared with the first nine months of 2019 due to reduced travel-related costs of $2.1 million and lower payroll-related costs as a result of restructuring actions taken in the first half of 2020 and benefits received from government employee retention assistance programs.

Results of Operations (continued)

SG&A expenses as a percentage of revenue at our Material Handling segment decreased to 23% in the first six months of 2020 compared with 26% in the first six months of 2019.

The first six months of 2019 included amortization of acquired backlog of $1.3 million and other acquisition-related costs associated with the SMH acquisition of $0.8 million.

Excluding these acquisition-related costs, SG&A expenses as a percentage of revenue were unchanged at 23% in both periods.

SG&A expenses at Corporate decreased in the first six months of 2020 compared with the first six months of 2019 primarily due to lower incentive compensation cost.

SG&A expenses as a percentage of revenue at our Industrial Processing segment increased to 22% in the first nine months of 2020 compared with 20% in the first nine months of 2019 due to lower revenues in the 2020 period.

SG&A expenses decreased in the first nine months of 2020 compared with the first nine months of 2019 principally due to reduced travel-related costs of $2.2 million and benefits received from government employee retention assistance programs of $1.2 million.

These decreases were partially offset by higher professional service fees and acquisition-related costs of $0.6 million in the 2020 period.

SG&A expenses as a percentage of revenue at our Material Handling segment decreased to 23% in the first nine months of 2020 compared with 25% in the first nine months of 2019.

The 2020 period includes amortization of acquired backlog associated with the acquisition of SMH of $0.3 million, while the 2019 period includes amortization of acquired backlog of $1.3 million and other acquisition-related costs of $0.8 million for the acquisition of SMH.

Excluding these acquisition-related costs, SG&A expenses as a percentage of revenue decreased to 22% in the first nine months of 2020 compared to 23% in the first nine months of 2019 due to reduced travel-related costs.

SG&A expenses at Corporate decreased in the first nine months of 2020 compared with the first nine months of 2019 primarily due to lower professional service fees.

Restructuring Costs

See Restructuring Costs in Results of Operations, "Second Quarter 2020 Compared With Second Quarter 2019" for a discussion of the restructuring actions taken during the second quarter of 2020.

Restructuring costs of $0.9 million, consisting of $0.7 million in our Flow Control segment and $0.2 million in our Industrial Processing segment, in the first nine months of 2020 represent severance costs for 54 employees to reduce future payroll-related overhead and operating costs in response to the slowdown in the global economy, largely driven by COVID-19.

In the first nine months of 2020, we also reduced our workforce by 21 employees within our Industrial Processing segment with no associated severance costs.

We expect annualized payroll-related savings as a result of these actions of approximately $4.1 million, including $2.7 million at our Flow Control segment and $1.4 million at our Industrial Processing segment, which consist of approximately $2.0 million related to cost of sales and $2.1 million related to operating expenses.

We may incur additional restructuring costs as we continue to evaluate the impact of COVID-19 and the resulting global economic downturn on our business.

Interest Expense

Interest expense decreased to $4.4 million in the first six months of 2020 from $7.1 million in the first six months of 2019 due to a lower weighted-average interest rate and lower outstanding debt.

Interest expense decreased to $6.1 million in the first nine months of 2020 from $10.1 million in the first nine months of 2019 due to a lower weighted-average interest rate and lower outstanding debt.

Provision for Income Taxes

Our provision for income taxes increased to $9.0 million in the first six months of 2020 from $7.1 million in the first six months of 2019.

The effective tax rate of 27% in the first six months of 2020 was higher than our statutory tax rate of 21% primarily due to nondeductible expenses, the distribution of our worldwide earnings, state taxes, and tax expense associated with GILTI.

These increases in tax expense were offset in part by net excess income tax benefits from stock-based compensation arrangements.

The effective tax rate of 21% in the first six months of 2019 was equal to our statutory tax rate.

Included in our effective tax rate of 21% was a net tax benefit of 3% of pre-tax income associated with foreign exchange losses and tax costs recognized upon our repatriation of certain previously-taxed foreign earnings and a tax benefit related to the net excess income tax benefits from stock-based compensation arrangements.

These tax benefits were offset by tax expense primarily related to nondeductible expenses, the distribution of our worldwide earnings, GILTI, and state taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law and provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief.

The enactment of the CARES Act did not have a material impact on our provision for income taxes for the first six months of 2020.

We continue to monitor any effects that result from the CARES Act.

Net income decreased $3.1 million to $24.4 million in the first six months of 2020 from $27.5 million in the first six months of 2019 primarily due to a $3.9 million decrease in operating income and a $1.9 million increase in provision for income taxes, offset in part by a decrease in interest expense of $2.7 million (see discussions above for further details).

Our provision for income taxes increased to $13.7 million in the first nine months of 2020 from $12.3 million in the first nine months of 2019.

The effective tax rate of 26% in the first nine months of 2020 was higher than our statutory rate of 21% primarily due to nondeductible expenses, the distribution of our worldwide earnings, and state taxes.

These increases in tax expense were offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements.

The effective tax rate of 22% in the first nine months of 2019 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, tax expense associated with GILTI, state taxes, and the cost of repatriating the earnings of certain foreign subsidiaries.

This incremental tax expense was offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements, a net tax benefit associated with foreign exchange losses and tax costs recognized upon our repatriation of certain previously taxed foreign earnings, and the reversal of tax reserves associated with uncertain tax positions.

Net income decreased $4.3 million to $39.4 million in the first nine months of 2020 from $43.7 million in the first nine months of 2019 primarily due to a $7.2 million decrease in operating income and a $1.4 million increase in provision for income taxes, offset in part by a decrease in interest expense of $4.1 million (see discussions above for further details).

Recent Accounting Pronouncements

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Liquidity and Capital Resources

Consolidated working capital was $139.3 million at June 27, 2020 , compared with $151.4 million at December 28, 2019 .

Included in working capital were cash and cash equivalents of $57.5 million at June 27, 2020 , compared with $66.8 million at December 28, 2019 .

Cash and cash equivalents held by our foreign subsidiaries was $56.1 million at June 27, 2020 and $58.9 million at December 28, 2019 .

The decrease in working capital at June 27, 2020 was largely impacted by the reclassification of our Real Estate Loan to short-term obligations at June 27, 2020.

Our Real Estate Loan was prepaid in July 2020 with borrowings under our revolving credit facility.

See Debt Obligations below for more detail.

Liquidity and Capital Resources (continued)

Cash flow information in the first six months of 2020 and 2019 was as follows:

Six Months Ended

(In thousands)

Consolidated working capital was $155.7 million at September 26, 2020, compared with $151.4 million at December 28, 2019.

Included in working capital were cash and cash equivalents of $53.6 million at September 26, 2020, compared with $66.8 million at December 28, 2019.

Cash and cash equivalents held by our foreign subsidiaries was $52.6 million at September 26, 2020 and $58.9 million at December 28, 2019.

Cash flow information in the first nine months of 2020 and 2019 was as follows:

Nine Months Ended

(In thousands) September 26,

2020 September 28,

Net Cash Provided by Operating Activities $ 52,601 $ 58,166

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Operating Activities

Cash provided by operating activities decreased to $28.2 million in the first six months of 2020 from $32.5 million in the first six months of 2019.

Our operating cash flows are primarily from cash received from customers, offset by cash payments for such items as inventory, employee compensation, operating leases, income taxes and interest payments on outstanding debt obligations.

The decrease in cash provided by operating activities in the first six months of 2020 compared with the first six months of 2019 was primarily due to lower net income, offset in part by lower cash used for working capital.

We received cash of $4.8 million for accounts receivable in the first six months of 2020 compared to cash used of $2.9 million in the prior period, primarily due to the timing of collections and reduced project activity in 2020.

We received cash of $1.6 million from other current assets in the first six months of 2020 compared to cash used of $3.4 million in the 2019 period, primarily related to refundable income taxes.

We used cash of $5.0 million for accounts payable in the first six months of 2020 compared to cash received of $3.4 million in the prior period primarily due to lower payables from reduced spending levels in 2020.

We used $9.2 million for other current liabilities in the first six months of 2020 compared to $5.6 million in the 2019 period primarily due to a reduction in advanced billings due to timing and amounts of capital orders.

Cash provided by operating activities decreased to $52.6 million in the first nine months of 2020 from $58.2 million in the first nine months of 2019.

Our operating cash flows are primarily from cash received from customers, offset by cash payments for items such as inventory, employee compensation, operating leases, income taxes and interest payments on outstanding debt obligations.

The decrease in cash provided by operating activities in the first nine months of 2020 compared with the first nine months of 2019 was primarily due to lower net income, offset in part by slightly less cash used for working capital.

Cash used for working capital was $15.4 million in the first nine months of 2020 and $15.9 million in the first nine months of 2019.

We used cash of $6.2 million for inventory in the first nine months of 2020 primarily relating to the buildup of inventory for capital equipment and spare parts that will be shipped in late fiscal 2020 and early fiscal 2021 compared to cash used of $10.3 million in the prior period due to increased inventory at our wood processing business.

We used cash of $13.2 million for accounts payable in the first nine months of 2020 primarily due to lower payables resulting from reduced spending levels during 2020 compared with cash received of $2.8 million in the 2019 period.

We received cash of $2.8 million from other current assets in the first nine months of 2020 compared with cash used of $4.1 million in the 2019 period primarily related to changes in refundable income taxes in both periods.

Investing Activities

Our investing activities used cash of $10.7 million in the first six months of 2020 compared with $180.6 million in the first six months of 2019.

Our investing activities used cash of $12.5 million in the first nine months of 2020 compared with $182.8 million in the first nine months of 2019.

The 2020 period included a use of cash of $7.1 million for acquisitions and the 2019 period included a use of cash of $176.9 million for the acquisition of SMH.

Financing Activities

Our financing activities used cash of $23.4 million in the first six months of 2020 compared with cash provided of $160.4 million in the first six months of 2019.

dollar-denominated borrowings under our revolving credit facility, primarily relating to acquisitions, were $7.0 million in the 2020 period and $191.0 million in the 2019 period.

Payments on our outstanding debt obligations were $24.2 million in the 2020 period and $24.6 million in the 2019 period.

Our financing activities used cash of $52.9 million in the first nine months of 2020 compared with cash provided of $130.5 million in the first nine months of 2019.

Repayment of long-term obligations was $69.0 million in the first nine months of 2020 and $108.3 million in the first nine months of 2019.

Repayment in the 2020 period included an $18.9 million prepayment of the outstanding principal balance on our Real Estate Loan using U.S.

borrowings available under our revolving credit facility.

Repayment in the 2019 period included $71.1 million of cash repatriated from Europe that was used to repay U.S.

borrowings under our revolving credit facility.

Borrowings under our revolving credit facility were $26.0 million in the 2020 period, including amounts used to prepay our Real Estate Loan, and $247.1 million in the 2019 period, including $179.3 million of U.S.-denominated borrowings for the acquisition of SMH and $56.1 million of euro-denominated borrowings.

Liquidity and Capital Resources (continued)

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash

The exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiaries.

The $1.5 million reduction in cash, cash equivalents, and restricted cash in the first six months of 2020 is primarily related to the strengthening of the U.S.

dollar, particularly against the Brazilian real, Canadian dollar and Mexican peso.

The $2.0 million reduction in cash, cash equivalents, and restricted cash in the first nine months of 2019 related to the strengthening of the U.S.

dollar, particularly against the euro, Chinese renminbi, and Swedish krona.

Debt Obligations

Under our revolving credit facility, we have a borrowing capacity of $400 million, of which $150.8 million was available to borrow as of June 27, 2020, along with an additional uncommitted, unsecured incremental borrowing facility of $150 million.

Under our revolving credit facility, we have a borrowing capacity of $400 million, of which $154.8 million was available to borrow as of September 26, 2020, along with an additional uncommitted, unsecured incremental borrowing facility of $150 million.

In addition, under our uncommitted Multi-Currency Note Purchase and Private Shelf Agreement (Note Purchase Agreement), we may issue up to an additional $115 million of senior promissory notes.

Under these agreements, our leverage ratio must be less than 3.75.

As of June 27, 2020, our leverage ratio was 2.01 and we were in compliance with our debt covenants.

Liquidity and Capital Resources (continued)

In July 2020, we prepaid the outstanding principal balance of $18.9 million on our Real Estate Loan, together with accrued interest and a prepayment penalty of $0.2 million using borrowings available under our revolving credit facility.

We do not have any material mandatory principal payments on our debt obligations until 2023.

See Note 6 , Short- and Long-Term Obligations, and Note 14 , Subsequent Event, in the accompanying condensed consolidated financial statements for additional information regarding our debt obligations, including the prepayment of our Real Estate Loan.

Under these agreements, our leverage ratio, as defined, must be less than 3.75.

As of September 26, 2020, our leverage ratio was 1.88 and we were in compliance with our debt covenants.

We do not have any mandatory principal payments on our long-term debt obligations until 2023.

See Note 6 , Long-Term Obligations, in the accompanying condensed consolidated financial statements for additional information regarding our debt obligations.

Additional Liquidity and Capital Resources

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We have not repurchased any shares of our common stock under this authorization or under the previous authorization, which expired on May 15, 2020.

We paid cash dividends of $5.4 million in the first six months of 2020.

On May 13, 2020, we declared a quarterly cash dividend of $0.24 per share totaling $2.8 million that will be paid on August 6, 2020.

We paid cash dividends of $8.1 million in the first nine months of 2020.

On September 17, 2020, we declared a quarterly cash dividend of $0.24 per share totaling $2.8 million that will be paid on November 12, 2020.

Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change.

The declaration of cash dividends is subject to our compliance with the covenant in our revolving credit facility related to our consolidated leverage ratio.

We plan to make expenditures of approximately $3 million to $4 million during the remainder of 2020 for property, plant, and equipment.

We will continue to monitor our capital expenditures for the remainder of 2020 as part of our effort to conserve global cash resources for any short-term cash needs that may develop as a result of the COVID-19 pandemic.

As of June 27, 2020 , we had approximately $253.9 million of total unremitted foreign earnings.

It is our intent to indefinitely reinvest $243.9 million of these earnings to support the current and future capital needs of our foreign operations,

including debt repayments, if any.

For the first six months of 2020, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future.

We plan to make expenditures of approximately $3 million during the remainder of 2020 for property, plant, and equipment.

As of September 26, 2020, we had approximately $274.0 million of total unremitted foreign earnings.

It is our intent to indefinitely reinvest $252.6 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any.

For the first nine months of 2020, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future.

The foreign withholding taxes that would be required if we were to remit the indefinitely reinvested foreign earnings to the United States would be approximately $5.5 million.

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Contractual Obligations and Other Commercial Commitments

There have been no significant changes to our contractual obligations and other commercial commitments during the six months ended June 27, 2020 compared with those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019 , except that we gave notice to the lender bank of our intent to prepay the Real Estate Loan as disclosed in Note 6 , Short- and Long-Term Obligations, and Note 14 , Subsequent Event, in the accompanying condensed consolidated financial statements.

There have been no significant changes to our contractual obligations and other commercial commitments during the nine months ended September 26, 2020 compared with those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, except for the prepayment of the Real Estate Loan as disclosed in Note 6 , Long-Term Obligations, in the accompanying condensed consolidated financial statements.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk from changes in interest rates and foreign currency exchange rates has not changed materially from our exposure as disclosed in Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 27, 2020 .

The term "disclosure controls and procedures," as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is

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