GATES INDUSTRIAL CORPORATION PLC
The following discussion should be read in conjunction with the condensed
consolidated financial statements and related notes thereto included elsewhere
in this quarterly report. In addition to historical information, this discussion
contains forward-looking statements that involve risks, uncertainties and
assumptions that could cause actual results to differ materially from
management's expectations. Factors that could cause such differences are
discussed in "Forward-Looking Statements" above, Part I, Item 1A. "Risk Factors"
in our annual report and Part II, Item 1A. "Risk Factors" below.
Our Company
We are a global manufacturer of innovative, highly engineered power transmission
and fluid power solutions. We offer a broad portfolio of products to diverse
replacement channel customers and to original equipment ("first-fit")
manufacturers as specified components, with the majority of our revenue coming
from replacement channels. Our products are used in applications across numerous
end markets, which include construction, agriculture, energy, automotive,
transportation, general industrial, consumer products and many others. We sell
our products globally under the Gates brand, which is recognized by
distributors, equipment manufacturers, installers and end users as a premium
brand for quality and technological innovation; this reputation has been built
for over a century since Gates' founding in 1911. Within the diverse end markets
we serve, our highly engineered products are often critical components in
applications for which the cost of downtime is high relative to the cost of our
products, resulting in the willingness of end users to pay a premium for
superior performance and availability. These applications subject our products
to normal wear and tear, resulting in a natural replacement cycle that drives
high-margin, recurring revenue. Our product portfolio represents one of the
broadest ranges of power transmission and fluid power products in the markets we
serve, and we maintain long-standing relationships with a diversified group of
blue-chip customers throughout the world. As a leading designer, manufacturer
and marketer of highly engineered, mission-critical products, we have become an
industry leader across most of the regions and end markets in which we operate.
Business Trends
Our net sales have historically been, and remain, highly correlated with
industrial activity and utilization and not with any single end market given the
diversification of our business and high exposure to replacement channels. This
diversification limits our exposure to trends in any given end market. In
addition, a majority of our sales are generated from customers in replacement
channels, who serve primarily a large base of installed equipment that follows a
natural maintenance cycle that is somewhat less susceptible to various trends
that affect our end markets. Such trends include infrastructure investment and
construction activity, agricultural production and related commodity prices,
commercial and passenger vehicle production, miles driven and fleet age,
evolving regulatory requirements related to emissions and fuel economy and oil
and gas prices and production. Key indicators of our performance include
industrial production, industrial sales and manufacturer shipments.
During the three months ended March 28, 2020 , sales into replacement channels
accounted for approximately 63% of our total net sales. Our replacement sales
cover a very broad range of applications and industries and, accordingly, are
highly correlated with industrial activity and utilization and not a single end
market. Replacement products are principally sold through distribution partners
that may carry a very broad line of products or may specialize in products
associated with a smaller set of end market applications.
During the three months ended March 28, 2020 , sales into first-fit channels
accounted for approximately 37% of our total net sales. First-fit sales are to a
variety of industrial and automotive customers. Our industrial first-fit
customers cover a diverse range of industries and applications and many of our
largest first-fit customers manufacture construction and agricultural equipment.
Among our automotive first-fit customers, a majority of our net sales are to
emerging market customers, where we believe our first-fit presence provides us
with a strategic advantage in developing those markets and ultimately increasing
our higher margin replacement channel sales. First-fit automotive sales in
developed markets represented approximately 7% of our total net sales for the
three months ended March 28, 2020 , with first-fit automotive sales in North
America contributing less than 3% of total sales. As a result of the foregoing
factors, we do not believe that our historical consolidated net sales have had
any meaningful correlation to global automotive production but are positively
correlated to industrial production.
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Our recently completed manufacturing footprint investments and other
productivity improvements in recent years have helped to position us to continue
to make progress on our restructuring program, which is primarily intended to
optimize our manufacturing and distribution footprint over the mid-term by
removing structural fixed costs and, to a lesser degree, to streamline our
selling, general and administrative ("SG&A") back-office functions. We
anticipate that most of the costs associated with these actions will be incurred
during 2020 and 2021. Some of these costs will, in accordance with U.S. GAAP, be
classified in cost of sales, negatively impacting gross margin, but due to their
nature and impact of hindering comparison of the performance of our businesses
on a period-over-period basis or with other businesses, they will be excluded
from Adjusted EBITDA, consistent with the treatment of similar costs in the
current and prior years.
Impact of COVID-19 Pandemic
The first quarter of 2020 marked the beginning of an unprecedented environment
for the global economy, as governments, companies and communities implemented
strict measures to minimize the spread of the COVID-19 pandemic. We are
prioritizing the health and safety of our employees and the communities around
the world in which we operate, taking additional protective measures in our
plants to safely maintain operational continuity in support of our global
customer base.
In early February, as our business in China was being impacted, we mobilized a
centralized crisis response team that developed and is tactically engaged in the
implementation of our countermeasure actions across our global footprint. We are
adhering to local government mandates and guidance provided by health
authorities and have proactively implemented quarantine protocols, social
distancing policies, working from home arrangements, travel suspensions,
frequent and extensive disinfecting of our workspaces, provision of personal
protective equipment, and mandatory temperature monitoring at our facilities. We
expect to continue to implement these measures and we may take further actions
if required or recommended by government authorities or if we determine them to
be in the best interests of our employees, customers, and suppliers.
Our operations are supported largely by local supply chains. Where necessary, we
have taken steps to qualify additional suppliers to ensure we are able to
maintain continuity of supply. Although we have not experienced any significant
disruptions to date, certain of our suppliers have, or may in the future,
temporarily close operations, delay order fulfillment or limit production due to
the pandemic. Continued disruptions, shipping delays or insolvency of key
vendors in our supply chain could make it difficult or more costly for us to
obtain the raw materials or other inputs we need for our operations.
Gates employs an in-region, for-region manufacturing strategy, under which local
operations primarily support local demand. In those cases where local production
supports demand in other regions, contingency plans have been activated as
appropriate. In addition to the handful of plants that were temporarily closed
by government mandates, we have proactively managed our output to expected
demand levels and occasionally suspended production at other plants for short
periods of time. We may continue to experience these production disruptions,
which could place constraints on our ability to produce our products and meet
customer demand. Of these temporary closures in the first quarter, the most
significant for us was in Greater China , where we closed all of our production
facilities for approximately three weeks. We have since safely returned these
plants to more normalized capacity. Our two largest regions of Europe and North
America did not begin to see an impact from COVID-19 until late March. With
large portions of the economies in these regions having effectively been shut
down since the beginning of April, we expect the second quarter to be the most
difficult of the year, with core revenue likely to sequentially decline in the
range of 15-25% compared with the first quarter.
As shelter-in-place requirements ease and there is continued progress in the
fight against COVID-19, we expect the second half of the year to improve
sequentially from the second quarter. Given the magnitude of the decline we
expect to experience in the first half of the year and the different rates of
demand recovery we believe we will see across different end markets and
geographies, we expect the full year to result in a revenue decline compared
with the prior year. Reflecting the progress we made last year in right-sizing
the business, we would expect our full-year decremental margin to be an
improvement from what we saw in 2019, despite the relatively unexpected and
significant decline in revenue as a result of the pandemic.
We have strength and flexibility in our liquidity position, which includes
committed borrowing headroom of $440.3 million under our lines of credit (none
of which are currently expected to be drawn in the foreseeable future), in
addition to cash balances of $626.3 million as of March 28, 2020 . Our business
also has a demonstrated ability to generate free cash flow even in challenging
environments.
As a result of the unpredictable and evolving impact of the pandemic and
measures being taken around the world to combat its spread, the timing and
trajectory of the recovery are unclear at this time, and the adverse impact of
the pandemic on Gates' operations may be material. In addition, see Item 1A.
"Risk Factors" in Part II of this quarterly report for updates to our risk
factors regarding risks associated with the COVID-19 pandemic.
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Despite this highly uncertain environment, our experience in China and
subsequently has helped frame our response to this crisis and our focus in 2020
will continue to be on:
•safely supporting our employees, customers and the communities in which we
operate;
•actively managing what we can control in terms of our supply chains and
operations;
•managing our compressible spending to the prevailing demand conditions by
tightly controlling discretionary spending; and
•funding our key growth initiatives to enhance our differentiation in the market
and allow us to emerge from this downturn in an even stronger competitive
position.
Results for the three months ended March 28, 2020 compared with the results for
the three months ended March 30, 2019
Summary Gates Performance
Three months ended
(dollars in millions) March 28, 2020 March 30, 2019
Net sales $ 710.1 $ 804.9
Cost of sales 454.3 497.6
Gross profit 255.8 307.3
Selling, general and administrative expenses 193.4 200.5
Transaction-related (income) expenses (0.2) 0.4
Restructuring expenses 1.9 3.3
Other operating expenses 2.3 2.9
Operating income from continuing operations 58.4 100.2
Interest expense 36.7 38.1
Other income (2.1) (3.3)
Income from continuing operations before taxes 23.8 65.4
Income tax benefit (16.1) (539.7)
Net income from continuing operations $ 39.9 $ 605.1
Adjusted EBITDA(1) $ 120.8 $ 165.5
Adjusted EBITDA margin 17.0 % 20.6 %
(1) See "-Non-GAAP Measures" for a reconciliation of Adjusted EBITDA to net
income from continuing operations, the closest comparable GAAP measure, for each
of the periods presented.
Net sales
Net sales during the three months ended March 28, 2020 were $710.1 million , down
by 11.8%, or $94.8 million , compared with net sales during the prior year period
of $804.9 million . Please see "-Analysis by Operating Segment" for a discussion
of changes in net sales for each of our segments. Our net sales for the three
months ended March 28, 2020 were adversely impacted by movements in average
currency exchange rates of $13.7 million compared with the prior year period,
due principally to the strengthening of the U.S. dollar against a number of
currencies, including the Euro and the Brazilian Real. Excluding this impact,
core sales decreased by $81.1 million , or 10.1%, during the three months ended
March 28, 2020 compared with the prior year period. This decrease was due
primarily to lower volumes.
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Core sales in our Power Transmission and Fluid Power businesses declined by 9.8%
and 10.6%, respectively, for the three months ended March 28, 2020 . These
declines came from sales to both our industrial and automotive customers, and in
almost every region, due to slowing demand driven by the impact of the COVID-19
pandemic. These declines were primarily concentrated in sales to first-fit
customers, which declined globally by 14.9% during the three months ended
March 28, 2020 compared with the prior year period, while sales into the
replacement channels declined by 7.0% during the same period. During the three
months ended March 28, 2020 , sales in North America were down by 9.2%, driven by
an 18.3% decrease in sales to industrial first-fit customers, while overall
sales in Greater China were lower by 30.1%, primarily the result of a 44.5%
decline in automotive first-fit sales. Industrial sales were particularly weak
in the construction and general industrial end markets, which declined globally
by 15.3% and 11.0%, respectively, during the three months ended March 28, 2020
compared with the prior year period, primarily in North America . Greater China
sales into the automotive end market were down by 38.9% during the three months
ended March 28, 2020 compared with the prior year period, primarily due to the
impact of approximately three weeks of production shutdown as a result of the
measures taken in response to the COVID-19 pandemic. Automotive end market sales
in EMEA were 3.7% higher during the three months ended March 28, 2020 compared
with the prior year period, but declines in sales into the construction and
general industrial end markets in EMEA more than offset this growth.
Cost of sales
Cost of sales for the three months ended March 28, 2020 was $454.3 million , a
decrease of 8.7%, or $43.3 million , compared with $497.6 million for the prior
year period. The decrease was driven primarily by lower volumes of $39.4 million
and favorable movements in average currency exchange rates of $9.2 million .
These decreases were offset primarily by $12.9 million from lower manufacturing
performance driven by the lower absorption of fixed costs on lower production
volumes and some excess variable costs as we continued to adjust our production
costs to the current demand levels.
Gross profit
As a result of the factors described above, gross profit for the three months
ended March 28, 2020 was $255.8 million , down 16.8% from $307.3 million for the
prior year period. Our gross profit margin accordingly dropped by 220 basis
points to 36.0% for the three months ended March 28, 2020 , down from 38.2% for
the prior year period.
Selling, general and administrative expenses
SG&A expenses for the three months ended March 28, 2020 were $193.4 million
compared with $200.5 million for the prior year period. This decrease of
$7.1 million was driven primarily by favorable legal settlements of $4.5 million
as well as lower outbound freight due to lower volumes, and travel cost savings
due to measures put in place in response to the COVID-19 pandemic.
Transaction-related (income) expenses
Transaction-related income for the three months ended March 28, 2020 was
$0.2 million compared with an expense of $0.4 million for the prior year period.
The net income for the three months ended March 28, 2020 related primarily to
discounts on professional services in relation to a terminated acquisition
project. The transaction-related expenses incurred in the prior year period
related primarily to corporate transactions.
Restructuring expenses
As described further under the "Business Trends" section of this report, we are
accelerating and expanding upon our previously announced restructuring program,
which is primarily intended to optimize our manufacturing and distribution
footprint over the mid-term by removing structural fixed costs, and, to a lesser
degree, to streamline our SG&A back-office functions.
Restructuring expenses of $1.9 million were recognized during the three months
ended March 28, 2020 , related primarily to the closure of two North American
manufacturing facilities and reductions in workforce, primarily in the U.S. and
Asia . Restructuring expenses of $3.3 million were recognized during the prior
year period, relating primarily to the closure of one of our facilities in
France and a strategic restructuring of part of our Asian business.
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Interest expense
Our interest expense was as follows:
Three months ended
(dollars in millions) March 28, 2020 March 30, 2019
Debt:
Dollar Term Loan $ 18.8 $ 20.7
Euro Term Loan 5.7 5.6
Dollar Senior Notes 8.8 8.6
33.3 34.9
Amortization of deferred issuance costs 2.4 2.5
Other interest expense 1.0 0.7
$ 36.7 $ 38.1
Details of our long-term debt are presented in note 12 to the condensed
consolidated financial statements included elsewhere in this report. Interest on
debt for the three months ended March 28, 2020 decreased when compared with the
equivalent prior year period due primarily to the lower interest rates
applicable on the floating rate Dollar Term Loan.
Other income
Our other income were as follows:
Three months ended
(dollars in millions) March 28, 2020 March 30, 2019
Interest income on bank deposits $ (2.0) $ (1.1)
Foreign currency loss (gain) on net debt and hedging instruments 0.3 (0.9)
Net adjustments related to post-retirement benefits (0.5) (1.3)
Other 0.1 -
$ (2.1) $ (3.3)
Other income for the three months ended March 28, 2020 was $2.1 million ,
compared with an expense of $3.3 million in the prior year period. This change
was driven primarily by the impact on our net debt of movements in the Euro
relative to the U.S. dollar. Lower expected returns on plan assets based on the
most recent actuarial valuations also drove some of the decrease in other income
during the three months ended March 28, 2020 compared with the prior year
period, but this was offset by higher interest income on bank deposits due to
the higher average cash balance on hand.
Income tax expense
We compute the year-to-date income tax provision by applying our estimated
annual effective tax rate to our year-to-date pre-tax income and adjust for
discrete tax items in the period in which they occur.
For the three months ended March 28, 2020 , we had an income tax benefit of $16.1
million on pre-tax income of $23.8 million , which resulted in an effective tax
rate of (67.6)%, compared with an income tax benefit of $539.7 million on
pre-tax income of $65.4 million , which resulted in an effective tax rate of
(825.2)% for the three months ended March 30, 2019 .
The increase in the effective tax rate for the three months ended March 28, 2020
compared with the prior year period was due primarily to the recognition in the
prior year of a discrete benefit of $617.3 million related to the release of
valuation allowances, mainly related to Luxembourg net operating losses,
partially offset by a discrete expense of $66.1 million related primarily to
unrecognized tax benefits from the European business reorganization. The current
year rate is driven mainly by discrete tax benefits of $24.7 million , related to
the reversal of unrecognized tax benefits, net of settlement amounts, arising
from the resolution of audits in Canada and Germany and $3.2 million from law
changes in India with respect to the taxation of dividends. These current period
benefits were offset partially by $6.3 million of discrete expenses arising from
the enactment in the U.S. of the Coronavirus Aid, Relief and Economic Security
Act (the "CARES Act").
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Deferred Tax Assets and Liabilities
We recognize deferred tax assets and liabilities for future tax consequences
arising from differences between the carrying amounts of existing assets and
liabilities under U.S. GAAP and their respective tax bases, and for net
operating loss carryforwards and tax credit carryforwards. We evaluate the
recoverability of our deferred tax assets, weighing all positive and negative
evidence, and are required to establish or maintain a valuation allowance for
these assets if we determine that it is more likely than not that some or all of
the deferred tax assets will not be realized. The weight given to the evidence
is commensurate with the extent to which the evidence can be objectively
verified. If negative evidence exists, positive evidence is necessary to support
a conclusion that a valuation allowance is not needed.
Our framework for assessing the recoverability of deferred tax assets requires
us to weigh all available evidence, including:
•taxable income in prior carry back years if carry back is permitted under the
relevant tax law;
•future reversal of existing temporary differences;
•tax-planning strategies that are prudent and feasible; and
•future taxable income exclusive of reversing temporary differences and
carryforwards.
As of each reporting date, management considers new evidence, both positive and
negative, that could impact our view with regard to the future realization of
deferred tax assets. We will maintain our positions with regard to future
realization of deferred tax assets, including those with respect to which we
continue maintaining valuation allowances, until there is sufficient new
evidence to support a change in expectations. Such a change in expectations
could arise due to many factors, including those impacting our forecasts of
future earnings, as well as changes in the international tax laws under which we
operate and tax planning. It is not reasonably possible to forecast any such
changes at the present time, but it is possible that, should they arise, our
view of their effect on the future realization of deferred tax assets may impact
materially our financial statements.
Significant Events
On March 27, 2020 , the CARES Act was enacted and signed into law in the U.S. in
response to the COVID-19 pandemic. One of the provisions of this law is an
increase to the allowable business interest deduction from 30% of adjusted
taxable income to 50% of adjusted taxable income for the 2019 and 2020 tax
years. This modification significantly increases the current deductible interest
expense of the Company for both years, which will result in a cash benefit while
increasing our effective tax rate through requirements to allocate and apportion
interest expense for certain other tax purposes, including in determining our
global intangible low-taxed income inclusion, deduction for foreign derived
intangible income, and the utilization of foreign tax credits.
Adjusted EBITDA
Adjusted EBITDA for the three months ended March 28, 2020 was $120.8 million , a
decrease of 27.0% or $44.7 million , compared with Adjusted EBITDA of
$165.5 million for the prior year period. Adjusted EBITDA margin was 17.0% for
the three months ended March 28, 2020 , a 360 basis point decrease from the prior
year period margin of 20.6%. The decrease in Adjusted EBITDA was driven
primarily by reduced gross profit of $51.5 million , which was the result of
lower sales of $94.8 million , as well as the impact of lower fixed cost
absorption on cost of sales as described above. Partially offsetting this
decrease were lower SG&A expenses as noted above.
For a reconciliation of net income to Adjusted EBITDA for each of the periods
presented and the calculation of the Adjusted EBITDA margin, see "-Non-GAAP
Measures."
Analysis by Operating Segment
Power Transmission (62.1% of Gates' net sales for the three months ended
March 28, 2020 )
Three months ended
(dollars in millions) March 28, 2020 March 30, 2019 Period over Period Change
Net sales $ 441.2 $ 499.5 (11.7 %)
Adjusted EBITDA $ 79.5 $ 109.9 (27.7 %)
Adjusted EBITDA margin 18.0 % 22.0 %
34-------------------------------------------------------------------------------- Table of Contents Net sales in Power Transmission for the three months endedMarch 28, 2020 were$441.2 million , a decrease of 11.7%, or$58.3 million , when compared with the prior year period net sales of$499.5 million . Excluding the adverse impact of movements in average currency exchange rates of$9.5 million , core sales decreased by 9.8%, or$48.8 million , compared with the prior year period. The majority of this decrease was due to lower sales volumes. Power Transmission's core sales decline was driven by lower sales to automotive first-fit and industrial replacement customers, which declined by 15.3% and 13.9%, respectively, during the three months endedMarch 28, 2020 compared with the prior year period. These declines were due primarily to weak demand inGreater China resulting from a combination of market softness and widespread shutdowns resulting from measures put in place in response to the COVID-19 pandemic. Sales to automotive replacement customers declined by 10.3% and 40.6% inNorth America andGreater China , respectively, during the three months endedMarch 28, 2020 compared with the prior year period, but this was offset partially by strong growth of 12.6% in EMEA. Industrial sales declined across all end markets during the three months endedMarch 28, 2020 compared with the prior year period, predominantly in the construction and general industrial end markets, driven by weakness inNorth America andGreater China . Our Power Transmission Adjusted EBITDA for the three months endedMarch 28, 2020 was$79.5 million , a decrease of 27.7% or$30.4 million , compared with the prior year period Adjusted EBITDA of$109.9 million . The decrease in Adjusted EBITDA was driven by lower volumes and lower manufacturing performance resulting in decreases in Adjusted EBITDA of$25.9 million and$6.3 million , respectively. Adjusted EBITDA margin for the three months endedMarch 28, 2020 was 18.0%, a 400 basis point decline from the prior year period Adjusted EBITDA margin of 22.0%, driven by the impacts described above.Fluid Power (37.9% of Gates' net sales for the three months endedMarch 28, 2020 ) Three months ended (dollars in millions) March 28, 2020 March 30, 2019 Period over Period Change Net sales$ 268.9 $ 305.4 (12.0 %) Adjusted EBITDA$ 41.3 $ 55.6 (25.7 %) Adjusted EBITDA margin 15.4 % 18.2 % Net sales inFluid Power for the three months endedMarch 28, 2020 were$268.9 million , a decrease of 12.0%, or$36.5 million , compared with net sales during the prior year period of$305.4 million . Excluding the adverse impact of movements in average currency exchange rates of$4.2 million , core sales decreased by 10.6%, or$32.3 million , compared with the prior year period. This decrease was due primarily to lower volumes. The core sales decline in the three months endedMarch 28, 2020 was driven almost exclusively by lower sales to industrial first-fit customers, which declined by 19.6% compared with the prior year period. Industrial sales into the construction and general industrial end markets were particularly weak, declining by 14.2% and 14.9%, respectively, during the three months endedMarch 28, 2020 , compared with the prior year period. This was driven primarily byNorth America , but construction end markets in EMEA were also weak, declining by 18.1% during the three months endedMarch 28, 2020 , compared with the prior year period. Adjusted EBITDA for the three months endedMarch 28, 2020 was$41.3 million , a decrease of 25.7%, or$14.3 million , compared with the prior year period Adjusted EBITDA of$55.6 million . The decrease in Adjusted EBITDA was driven primarily lower volumes of$20.4 million and manufacturing performance impacts of$6.6 million driven by lower fixed cost absorption on lower volumes and some excess variable costs. These impacts were offset partially by a$5.2 million benefit from favorable, inflation-mitigating pricing actions and a$5.4 million benefit from lower SG&A expenses. The Adjusted EBITDA margin consequently decreased by 280 basis points. Liquidity and Capital Resources Treasury Responsibilities and Philosophy Our primary liquidity and capital resource needs are for working capital, debt service requirements, capital expenditures, facility expansions and acquisitions. We expect to finance our future cash requirements with cash on hand, cash flows from operations and, where necessary, borrowings under our revolving credit facilities. We have historically relied on our cash flow from operations and various debt and equity financings for liquidity. 35 -------------------------------------------------------------------------------- Table of Contents From time to time, we enter into currency derivative contracts to manage currency transaction exposures. Similarly from time to time, we may enter into interest rate derivatives to maintain the desired mix of floating and fixed rate debt. As market conditions warrant, we and our majority equity holders,Blackstone and its affiliates, may from time to time, seek to repurchase securities that we have issued or loans that we have borrowed in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any such purchases may be funded by existing cash or by incurring new secured or unsecured debt, including borrowings under our credit facilities. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may relate to a substantial amount of a particular tranche of debt, with a corresponding reduction, where relevant, in the trading liquidity of that debt. In addition, any such purchases made at prices below the "adjusted issue price" (as defined forU.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which may be material, and result in related adverse tax consequences to us. It is our policy to retain sufficient liquidity throughout the capital expenditure cycle to maintain our financial flexibility. While we have seen a decline in our business in the first quarter of 2020, and the duration and extent of the impacts of the COVID-19 pandemic on our business are difficult to predict, we do not currently anticipate any material long-term deterioration in our overall liquidity position in the foreseeable future. Further, we do not have any meaningful debt maturities until 2024 and we do not currently expect to need to draw down under our committed lines of credit in the foreseeable future. We therefore believe that as ofMarch 28, 2020 , we have adequate liquidity and capital resources for the next twelve months. Cash Flow Three months endedMarch 28, 2020 compared with the three months endedMarch 30, 2019 Cash provided by operations was$31.1 million during the three months endedMarch 28, 2020 compared with cash used in operations of$47.7 million during the prior year. This increase was driven primarily by an increase of$19.5 million in accounts payable during the current year period, compared with a decrease of$25.8 million in the prior year period, largely due to timing in both periods. Interest paid was lower at$25.5 million during the three months endedMarch 28, 2020 , compared with$51.4 million in the prior year period, due primarily to the timing of quarterly interest payments on the term loans as well as the absence of the usual biannual January interest payment on the Dollar Senior Notes as a result of the refinancing completed inNovember 2019 . Net income taxes paid were also lower, with$18.5 million paid during the three months endedMarch 28, 2020 compared with$33.0 million in the prior year period, largely a function of the lower operational performance. Net cash used in investing activities during the three months endedMarch 28, 2020 was$24.6 million , compared with$31.7 million in the prior year. This decrease was driven by lower capital expenditures, which decreased by$8.0 million from$22.9 million in the three months endedMarch 30, 2019 to$14.9 million in the three months endedMarch 28, 2020 . Net cash used in financing activities was$2.9 million during the three months endedMarch 28, 2020 , compared with$13.1 million in the prior year. This decrease was driven primarily by an additional quarterly amortization payment on our term loans in the prior year period due to the timing of our fiscal year end. In addition, dividend payments of$1.8 million were made to non-controlling shareholders of certain majority-owned subsidiaries in the prior year period with no similar payments in the current period. 36 -------------------------------------------------------------------------------- Table of Contents Indebtedness Our long-term debt, consisting principally of two term loans andU.S. dollar denominated unsecured notes, was as follows: Carrying amount Principal amount As of As of As of As of (dollars in millions) March 28,2020 December 28, 2019 March 28,2020 December 28, 2019 Debt: -Secured Term Loans (U.S. dollar and Euro denominated)$ 2,384.4 $
2,395.0
572.2 563.2 568.0 568.0
Other debt 0.2 0.2 0.1 0.2
$ 2,956.8 $ 2,958.4 $ 2,972.4 $ 2,985.0
Details of our long-term debt are presented in note 12 to the condensed
consolidated financial statements included elsewhere in this quarterly report.
Dollar and Euro Term Loans
Our secured credit facilities include a Dollar Term Loan credit facility and a
Euro Term Loan credit facility that were drawn on July 3, 2014 . These facilities
mature on March 31, 2024 . These term loan facilities bear interest at a floating
rate. As of March 28, 2020 , borrowings under the Dollar Term Loan facility,
which currently bears interest at LIBOR, subject to a floor of 1.00%, plus a
margin of 2.75%, bore interest at a rate of 4.35% per annum. The Dollar Term
Loan interest rate is re-set on the last business day of each month. As of
March 28, 2020 , the Euro Term Loan bore interest at EURIBOR, which is currently
below 0%, subject to a floor of 0%, plus a margin of 3.00%. The Euro Term Loan
interest rate is re-set on the last business day of each quarter.
Both term loans are subject to quarterly amortization payments of 0.25%, based
on the original principal amount less certain prepayments with the balance
payable on maturity. During the three months ended March 28, 2020 , we made
amortization payments against the Dollar Term Loan and the Euro Term Loan of
$4.3 million and $1.8 million , respectively. During the three months ended
March 30, 2019 , we made amortization payments against the Dollar Term Loan and
the Euro Term Loan of $8.7 million and $3.6 million , respectively.
During the periods presented, foreign exchange gains were recognized in respect
of the Euro Term Loans as summarized in the table below. As a portion of the
facility was designated as a net investment hedge of certain of our Euro
investments, a corresponding portion of the foreign exchange gains (losses) were
recognized in other comprehensive income ("OCI").
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