The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and accompanying notes contained
herein and with the audited consolidated financial statements, accompanying
notes, related information and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual Report on Form 10-K
for the year ended December 31, 2019.
Forward-Looking Statements
Some statements in this report, as well as in other materials we file with the
Securities and Exchange Commission (SEC) or otherwise release to the public and
in materials that we make available on our website, constitute forward-looking
statements that are subject to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. All statements in the future tense and
all statements accompanied by words such as "expect," "likely," "outlook,"
"forecast," "preliminary," "would," "could," "should," "position," "will,"
"project," "intend," "plan," "on track," "anticipate," "to come," "may,"
"possible," "assume," and variations of such words and similar expressions are
intended to identify such forward-looking statements. Senior officers may also
make verbal statements to analysts, investors, the media and others that are
forward-looking. These forward-looking statements include, without limitation,
our expected ability to operate and protect our workforce during the COVID-19
pandemic, the execution and effect of our cost savings initiatives, our efforts
and initiatives to help us emerge from the pandemic well-positioned, our ongoing
efforts to maintain compliance and flexibility under our debt covenants, our
liquidity position to continue to operate during these highly uncertain times
and plans for future cost savings.
The Company cautions that its forward-looking statements involve risks and
uncertainties, and while we believe that our expectations for the future are
reasonable in view of currently available information, you are cautioned not to
place undue reliance on our forward-looking statements. Actual results or events
may differ materially from those indicated as a result of various important
factors. Such factors may include, among other things, the extent and duration
of the disruption to our business operations caused by the global health crisis
associated with the COVID-19 outbreak, including the effects on the financial
health of our business partners and customers, on supply chains and our
suppliers, on vehicle miles driven as well as other metrics that affect our
business, and on access to capital and liquidity provided by the financial and
capital markets; the Company's ability to maintain compliance with its debt
covenants and amend such credit facilities as necessary; the Company's ability
to successfully integrate acquired businesses into the Company and to realize
the anticipated synergies and benefits; the Company's ability to successfully
divest businesses; the Company's ability to successfully implement its business
initiatives in each of its three business segments; slowing demand for the
Company's products; the ability to maintain favorable supplier arrangements and
relationships; disruptions in our suppliers' operations, including the impact of
COVID-19 on our suppliers as well as our supply chain, including potential
problems with inventory availability and the potential result of higher cost of
product and international freight due to the high demand of products and low
supply for an unpredictable period of time; changes in national and
international legislation or government regulations or policies, including
changes to import tariffs and the unpredictability of such changes, data
security policies and requirements as well as privacy legislation; changes in
general economic conditions, including unemployment, inflation (including the
impact of tariffs) or deflation and the United Kingdom's exit from the European
Union, commonly known as Brexit, and the unpredictability of the impact
following such exit from the European Union; changes in tax policies; volatile
exchange rates; volatility in oil prices; significant cost increases, such as
rising fuel and freight expenses; labor shortages and the Company's ability to
successfully attract and retain employees in the current labor market; uncertain
credit markets and other macroeconomic conditions; competitive product, service
and pricing pressures; failure or weakness in our disclosure controls and
procedures and internal controls over financial reporting; including as a result
of the work from home environment; the uncertainties and costs of litigation;
disruptions caused by a failure or breach of the Company's information systems,
as well as other risks and uncertainties discussed in the Company's Annual
Report on Form 10-K for 2019 and Item 1A, risk factors, in this report on Form
10-Q (all of which risks may be amplified by the COVID-19 outbreak) and from
time to time in the Company's subsequent filings with the SEC.
Forward-looking statements are only as of the date they are made, and the
Company undertakes no duty to update its forward-looking statements except as
required by law. You are advised, however, to review any further disclosures we
make on related subjects in our subsequent Forms 10-K, 10-Q, 8-K and other
reports filed with the SEC.
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Overview
Genuine Parts Company is a service organization engaged in the global
distribution of automotive replacement parts, industrial parts and business
products. We have a long tradition of growth dating back to 1928, the year we
were founded in Atlanta, Georgia. The Company conducts business in North
America, Europe and Australasia from approximately 3,600 locations. At Genuine
Parts Company, our mission is to be a world-class service organization and the
employer of choice, supplier of choice, valued customer, good corporate citizen
and investment of choice. Our strategic financial objectives are intended to
align with our mission and drive value for all our stakeholders. Our strategic
financial objectives include: (1) top line revenue growth (2) improved operating
margin, (3) strong balance sheet and cash flow and (4) effective capital
allocation.
The Company's Automotive Parts Group operated in the U.S., Canada, Mexico,
France, the U.K., Germany, Poland, the Netherlands, Belgium, Australia and New
Zealand as of March 31, 2020, and accounted for 57% of total revenues for the
three months ended March 31, 2020. Our Industrial Parts Group operated in the
U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore. The
Industrial Parts Group accounted for 33% of the Company's total revenues for the
three months ended March 31, 2020. Our Business Products Group operated in the
U.S. as of March 31, 2020, as its Canadian operations were divested, effective
January 1, 2020. The Business Products Group accounted for 10% of total revenues
for the three months ended March 31, 2020.
COVID-19 Pandemic
The COVID-19 outbreak, which was declared a pandemic by the World Health
Organization ("WHO") on March 11, 2020, continues to evolve rapidly. Our deepest
and sincere thoughts go out to all affected by COVID-19, as well as the
dedicated healthcare workers and first responders who are on the front lines for
all our citizens.
Overall, our business segments face many uncertainties. These uncertainties
include the severity of the virus, the duration of the outbreak, governmental,
business or other actions taken in response to the pandemic, impacts on our
supply chain, the effect on customer demand, store closures or changes to our
operations. Our business segments experienced slowing sales trends over the last
two weeks of March due to growing pandemic concerns and the expansion of efforts
to combat COVID-19 by government authorities, such as "shelter in place" and
other similar orders and mandates. We expect the sales environment to slow
further due to COVID-19 and the decline in global economic activity during the
second quarter, and on a preliminary and estimated basis, the Company has
experienced a decrease in total daily sales of approximately 25% in April,
excluding divestitures, with our Automotive Group, Industrial Group and Business
Products Group down approximately 30%, 10% and 20%, respectively. While the
negative impact on our business operations cannot be reasonably estimated at
this time, our teams are preparing for multiple scenarios to ensure we continue
to protect our employees while also keeping our operations up and running to
serve our customers.
We have created a dedicated COVID-19 Taskforce and added enhanced protocols in
response to COVID-19, including recommendations and requirements issued by the
Centers for Disease Control and Prevention, WHO, and local, state and national
health authorities, to protect our employees, customers, suppliers and
communities.
Our operations are deemed "essential" across all markets in which we serve. As
of March 31, 2020, substantially all operations are open for business, with
France and New Zealand mostly closed due to government mandates. Our supply
chain partners have been very supportive and they continue to do their part to
ensure our service levels to our customers remain strong. We remain in constant
communication with our employees regarding changing conditions and protocol.
For further information regarding the impact of COVID-19 on the Company, please
see "Results of Operations," "Financial Condition," "Liquidity and Capital
Resources," "Changes in Internal Control over Financial Reporting," item 1A,
"Risk Factors," item 2, "Issuer Repurchase of Equity Securities" and item 5,
"Other Information" in this report, which is incorporated herein by reference.
Key Business Metrics
We consider comparable sales, daily sales and number of miles driven to be key
business metrics. These metrics should not be considered superior to, as a
substitute for or as an alternative to, and should be considered in conjunction
with, the GAAP financial measures presented in this report.
Comparable Sales
Our comparable sales growth is a significant driver of our net sales,
profitability, cash flow, and overall business results. Comparable sales (also
called organic sales or core sales) refer to period-over-period comparisons of
our net sales excluding the impact of acquisitions, divestitures and foreign
currency. The Company considers this metric useful to investors because it
provides greater transparency into management's view and assessment of the
Company's core ongoing operations. This is a metric that is widely used by
analysts, investors and competitors in our industry, although our calculation of
the metric may not
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be comparable to similar measures disclosed by other companies, because not all
companies and analysts calculate this metric in the same manner.
Daily Sales
Daily sales is a key metric that represents the amounts invoiced to the
Company's customers each day. Daily sales do not represent GAAP-based sales
because, among other things, invoices are not always generated at the same time
goods and services are delivered to customers and the amounts do not include
adjustments for estimates of returns, rebates or other forms of variable
consideration. Management uses this metric to monitor demand trends at each of
its subsidiaries throughout each month for the purposes of monitoring
performance against forecasts and to make operational decisions. The Company
considers this metric useful to investors because it provides greater
transparency into management's view and assessment of the Company's core ongoing
operations. The calculation of this metric may not be comparable to similar
measures disclosed by other companies, because not all companies and analysts
calculate this metric in the same manner.
Number of Miles Driven
The Company considers the number of miles driven, which is an industry-generated
metric, to be a key metric because it influences the demand for repair and
maintenance products sold within the automotive aftermarket. We believe
including this metric is useful to investors because it provides greater
transparency into management's view and assessment of trends in the Automotive
Parts Group.
Results of Operations
Overview
As the Company's automotive, industrial and business products operations are
each classified "essential" businesses to the communities in which we serve, the
Company has remained substantially open during the COVID-19 pandemic, with the
exception of the temporary lockdowns in France and New Zealand due to preemptive
government mandates. As an overview of our quarterly results, the Company's
sales and operating environment were severely impacted by the COVID-19 pandemic
in the last two weeks of the quarter. Overall, the Company attributes an
approximate 3% impact to sales and a 0.7% impact to segment margin, or $0.21 per
share, to COVID-19. Despite the challenges of these unprecedented business
conditions, our North American industrial operations, as well as our businesses
in Australasia, operated well and reported improved profit margins. In addition,
the Company improved its total gross margin in the quarter and implemented
accelerated cost savings initiatives to more effectively leverage our cost
structure.
Sales
Sales for the three months ended March 31, 2020 were $4.6 billion, a 3.7%
decrease as compared to $4.7 billion in the same period of the prior year. The
decline in sales is due to a 4.8% impact from divestitures, a 3.5% comparable
sales decrease due primarily to decreased demand from COVID-19 and a slightly
negative foreign currency impact. These items were partially offset by a 5.3%
positive impact from acquisitions.
Sales for the Automotive Parts Group decreased 1.6% for the three months ended
March 31, 2020, as compared to the same period in the prior year. This group's
decline in revenue for the three months ended March 31, 2020 consisted of an
approximate 5.0% decrease in comparable sales, a 1.7% unfavorable foreign
currency impact and a 0.6% impact from the sale of Grupo Auto Todo, which closed
in March of 2019. These items were mostly offset by a 5.3% benefit from
acquisitions.
Sales for the Industrial Parts Group decreased 7.7% for the three months ended
March 31, 2020, as compared to the same period in 2019. The decrease in this
group's revenues reflects an approximate 12.4% impact from the September 2019
sale of EIS and a 3.1% decrease in comparable sales. Foreign currency was flat
for the three months ended March 31, 2020. These items were partially offset by
a 7.8% benefit from acquisitions, including Inenco which closed on July 1, 2019.
Sales for the Business Products Group decreased 2.3% for the three months ended
March 31, 2020, compared to the same three month period in 2019, primarily due
to a 3.8% negative impact from the sale of SPR Canada in January 2020 and
Garland C. Norris in December 2019. This decrease was partially offset by an
increase of 1.5% in comparable sales primarily due to the increase in sales of
janitorial, sanitization and safety supplies as a result of the COVID-19
pandemic.
Cost of Goods Sold and Operating Expenses
Cost of goods sold for the three months ended March 31, 2020 was $3.1 billion, a
5.3% decrease from $3.2 billion for the same period in 2019. As a percentage of
net sales, cost of goods sold was 67.1% for the three months ended March 31,
2020, as compared to 68.2% in the same three month period of 2019. The decrease
in cost of goods sold for the three months ended March 31, 2020 primarily
relates to the impact of divestitures and the sales decrease due to COVID-19 for
these periods as
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compared to the same three month period of the prior year. The improvement in
gross margin is attributable to the favorable impact of divestitures as well as
the acquisitions of higher gross margin businesses in the Automotive and
Industrial segment. These items and favorable product mix shifts were partially
offset by a decrease in supplier incentives due to lower purchasing volumes. The
Company's cost of goods sold includes the total cost of merchandise sold,
including freight expenses associated with moving merchandise from our vendors
to our distribution centers, retail stores and branches, as well as vendor
volume incentives and inventory adjustments. Gross profit as a percentage of net
sales may fluctuate based on (i) changes in merchandise costs and related vendor
volume incentives or pricing, (ii) variations in product and customer mix, (iii)
price changes in response to competitive pressures, (iv) physical inventory and
LIFO adjustments, (v) changes in foreign currency exchange rates, and (vi) the
impact of tariffs. Tariffs did not have a material impact in the periods
presented.
Total operating expenses increased to $1.31 billion for the three months ended
March 31, 2020 as compared to $1.27 billion for the same three month period in
2019. As a percentage of net sales, operating expenses increased to 28.8% as
compared to 26.8% in the same three month period of the previous year.
The increase in operating expenses as a percentage of net sales for the three
months ended March 31, 2020 reflects the effect of rising costs in areas such as
freight, insurance, IT and cyber-security. In addition, the Company's ability to
leverage its expenses was negatively impacted due to lower than expected
comparable sales relative to the prior year. The Company's ongoing cost control
initiatives, as reflected in the decrease in comparable payroll costs in the
first quarter of 2020 relative to 2019, partially offset these increases in
operating expenses.
The Company's operating expenses are substantially comprised of compensation and
benefit-related costs for personnel. Other major expense categories include
facility occupancy costs for headquarters, distribution centers and retail
store/branch operations, insurance costs, accounting, legal and professional
services, technology and digital costs, transportation and delivery costs,
travel and advertising. Management's ongoing cost control measures in these
areas have served to improve the Company's overall cost structure. The Company's
recent acquisitions have lower costs of goods sold and higher levels of
operating costs as compared to the Company's other businesses; however, the
operating profit margins generally remain consistent.
Segment Profit
Segment profit decreased to $276.4 million for the three months ended March 31,
2020, compared to $321.5 million for the same three month period of the prior
year, a decrease of 14.0%. As a percentage of net sales, segment profit was 6.1%
as compared to 6.8% in the same three month period of 2019. The decrease in
segment profit as a percentage of sales for the three months ended March 31,
2020 occurred primarily because the Company's ability to leverage its expenses
was negatively impacted due to lower than expected comparable sales relative to
the prior year. In addition, segment expenses were impacted by the effect of
rising costs in areas such as freight, insurance, IT and cyber-security. This
decrease in segment profit as a percentage of sales was partially offset by the
improvement in gross margin for the three months ended March 31, 2020 as
compared to the same period in 2019.
As more fully discussed in our 2019 Form 10-K, the Company approved and began to
implement certain restructuring actions across its subsidiaries under the 2019
Cost Savings Plan, primarily targeted at simplifying organizational structures
and distribution networks. We believe that these actions, coupled with our
ongoing focus on driving top line sales growth, will continue to create value
for our stakeholders.
The Automotive Parts Group's segment profit decreased 20.6% in the three months
ended March 31, 2020 as compared to the same period of 2019, and its segment
profit margin was 5.5% as compared to 6.8% in the same period of the previous
year. The decrease in segment profit as a percentage of sales for the three
months ended March 31, 2020 is primarily due to the deleveraging of expenses due
to lower than expected comparable sales in the U.S., Canadian and European
automotive businesses as well as the impact of rising costs. This decrease is
partially offset by the improvement in segment margins in Australasia as
compared to the same period of the previous year.
The Industrial Parts Group's segment profit decreased 5.9% in the three months
ended March 31, 2020 as compared to the same three month period of 2019, and the
segment profit margin for this group improved to 7.5% compared to 7.4% for the
same period of the previous year. The improved segment profit margin reflects
the benefit of a more efficient operating structure in the North American
business as well as the positive impact of acquisitions and sale of EIS.
The Business Products Group's segment profit decreased 4.8% for the three months
ended March 31, 2020, compared to the same three month period in 2019, and the
segment profit margin was 4.3% compared to 4.4% for the same period of the
previous year. The decrease in segment profit margin for the three months ended
March 31, 2020 is primarily due to deleverage of expenses as compared to the
same periods in 2019.
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If there are sustained declines in macroeconomic or business conditions in
future periods, including as a result of the COVID-19 pandemic, affecting the
projected earnings and cash flows at our reporting units, among other things,
there can be no assurance that goodwill at one or more reporting units may not
be impaired. Nonetheless, as of March 31, 2020, we believe goodwill is
recoverable for all our reporting units.
In particular, we qualitatively assessed whether it was more likely than not
that the goodwill of our European automotive reporting unit was impaired. The
reporting unit had $1.2 billion in goodwill as of March 31, 2020. The reporting
unit primarily operates in the U.K., France, Germany and the Netherlands and
these countries have instituted varying levels of social distancing and
shelter-in-place mandates in response to the COVID-19 pandemic, including
substantially closing business operations in France. The reporting unit is
vulnerable to the significantly reduced economic activity caused by these
mandates. We are optimistic these conditions are temporary and have not impacted
the long-term expectations for the business. The reporting unit is also
benefiting from temporary government economic assistance throughout the region.
Based on our interim impairment assessment as of March 31, 2020, which included
reviewing our previous revenue and operating margin growth forecasts based on
our current projections, we have determined that it is not more likely than not
that the goodwill is impaired.
Income Taxes
The Company's effective income tax rate was 23.7% for the three months ended
March 31, 2020, compared to 24.2% for the same three month period in 2019. The
rate decrease is primarily due to geographic income tax rate mix and the impact
of one-time transaction and other costs, which was partially offset by a
decrease in stock compensation excess tax benefits recorded in the comparable
period.
Net Income
For the three months ended March 31, 2020, the Company recorded consolidated net
income of $136.5 million, a decrease of 14.8% as compared to consolidated net
income of $160.3 million in the same three month period of the prior year. On a
per share diluted basis, net income was $0.94, a decrease of 13.8% as compared
to $1.09 for the same three month period of 2019.
During the three months ended March 31, 2020, the Company incurred $0.9 million
of net expense, which represent restructuring costs and transaction and other
costs, primarily incremental costs associated with COVID-19 and divestitures,
mostly offset by income from the SPR Fire insurance proceeds. Refer to the
acquisitions and divestitures footnote and commitments and contengencies
footnote for more information.
Before the impact of realized currency losses, restructuring, transaction and
other costs and income, the Company's adjusted net income was $133.4 million, a
decrease of 28.7% as compared to adjusted net income of $187.2 million in the
same three month period of the prior year. On a per share basis, adjusted net
income was $0.92 for the three months ended March 31, 2020, a decrease of 28.1%
as compared to $1.28 for the same three month period of 2019. Each of adjusted
net income and adjusted diluted net income per common share is a non-GAAP
measure (see table below for reconciliation to GAAP net income).
The following table sets forth a reconciliation of net income and diluted net
income per common share to adjusted net income and adjusted diluted net income
per common share to account for the impact of these adjustments. The Company
believes that the presentation of adjusted net income and adjusted diluted net
income per common share, which are not calculated in accordance with GAAP, when
considered together with the corresponding GAAP financial measures and the
reconciliations to those measures, provide meaningful supplemental information
to both management and investors that is indicative of the Company's core
operations. The Company considers these metrics useful to investors because they
provide greater transparency into management's view and assessment of the
Company's ongoing operating performance by removing items management believes
are not representative of our continuing operations and may distort our
longer-term operating trends. We believe these measures to be useful to enhance
the comparability of our results from period to period and with our competitors,
as well as to show ongoing results from operations distinct from items that are
infrequent or not associated with the Company's core operations. The Company
does not, nor does it suggest investors should, consider such non-GAAP financial
measures, as superior to, in isolation from, or as a substitute for, GAAP
financial information.
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                                                                                               Amounts Per Share Assuming Dilution
                                                                                                                     Three Months Ended
                                                     Three Months Ended March 31,                                         March 31,
(in thousands, except per share data)                   2020                  2019                2020                   2019
GAAP net income                                  $      136,535           $ 160,250          $     0.94          0 $      1.09

Adjustments:
Gain on insurance proceeds related to SPR
Fire (1)                                                (12,283)                  -               (0.08)                     -
Transaction and other costs (2)                          11,760               7,077                0.08                   0.05
Restructuring costs (3)                                   1,439                   -                0.01                      -
Realized currency loss (4)                                    -              27,037                   -                   0.18
Total adjustments                                           916              34,114                0.01                   0.23
Tax impact of adjustments                                (4,048)             (7,150)              (0.03)                 (0.04)
Adjusted net income                              $      133,403           $ 187,214          $     0.92            $      1.28
Weighted average common shares outstanding
- assuming dilution                                                                             145,623                146,694

The table below clarifies where the items that have been adjusted above to improve comparability of the financial information from period to period are presented in the condensed consolidated statements of income.


                                                       Three Months Ended March 31,
(in thousands)                                        2020                        2019
Line item:
Selling, administrative and other expenses      $      9,825                   $  7,077
Restructuring costs                                    1,439                          -
Non-operating (income): Other                        (10,348)                    27,037
Total adjustments                               $        916                   $ 34,114


(1) Adjustment reflects insurance recoveries in excess of losses incurred on
inventory, property, plant and equipment and other fire-related costs related to
the S.P. Richards Headquarters and Distribution Center.
(2) Adjustment reflects (i) $6.0 million of incremental costs associated with
COVID-19 and (ii) costs associated with divestitures. COVID-19 related costs
include incremental costs incurred relating to fees to cancel marketing events
and increased cleaning and sanitization materials, among other things.
(3) Adjustment reflects restructuring costs related to the 2019 Cost Savings
Plan announced in the fourth quarter of 2019. The costs are primarily associated
with severance and other employee costs, including a voluntary retirement
program, and facility and closure costs related to the consolidation of
operations.
(4) Adjustment reflects realized currency loss related to the sale Grupo Auto
Todo in March 2019.
Financial Condition
The Company's cash balance of $354.5 million at March 31, 2020 increased $77.5
million, or 28.0%, from December 31, 2019. For the three months ended March 31,
2020, the Company had net cash provided by operating activities of $74.1
million, net cash used in investing activities of $35.5 million and net cash
provided by financing activities of $53.5 million. The investing activities
consisted primarily of $45.4 million for capital expenditures and $3.8 million
for acquisitions and other investing activities, slightly offset by $13.8
million proceeds from divestitures and the sale of property, plant and
equipment. The financing activities consisted primarily of $261.2 million net
proceeds from debt to enhance liquidity in light of the uncertain environment,
offset by $110.9 million for dividends paid to the Company's shareholders and
$95.7 million paid for share repurchases.
Accounts receivable increased $70.0 million, or 2.7%, from December 31, 2019. As
we continue into 2020 and this uncertain environment, we will be closely
monitoring our collection trends. However, collection trends are currently
meeting our expectations and we have observed that many of our small and
medium-sized customers in the U.S. and international markets are receiving
various forms of government assistance. Inventory decreased $132.3 million, or
3.5%, and accounts payable decreased $38.8 million, or 0.9% from December 31,
2019. Total debt of $3.6 billion at March 31, 2020 increased $209.2 million, or
6.1%, from December 31, 2019. We continue to negotiate extended payment dates
with our vendors. Certain
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vendors participate in financing arrangements with financial institutions that
allow the vendors to receive payment earlier while we pay the financial
institution based on the underlying vendor invoice amounts and due dates.
Liquidity and Capital Resources
We have taken action and will continue to take actions intended to increase our
cash position and preserve financial flexibility in light of current uncertainty
in the global markets resulting from COVID-19. These actions include negotiating
appropriate covenant amendments to our credit arrangements due to macro
uncertainty and evaluating alternative forms of liquidity to enhance credit
capacity, reducing our planned capital expenditures for fiscal 2020
(specifically deferring our growth related capital spending), temporarily
suspending our share repurchase program, and limiting merger and acquisition
activity to select "bolt-on" acquisitions. Additionally, we are taking
precautionary measures to conserve liquidity including, but not limited to,
reducing our inventory levels and managing replenishment volumes to adjust to
the new level of market demand and to the extent available, we are delaying tax
payments as allowed by governmental authorities. We have a low level of capital
expenditures related to maintenance items, which provides the flexibility to
decrease spending as needed to further preserve funds.
We believe that we have sufficient liquidity to manage through the current
market disruption caused by COVID-19. We ended the quarter with $1.1 billion of
total liquidity (comprising $0.7 billion availability on the revolving credit
facility and $0.4 billion of cash and cash equivalents). From time to time, the
Company may enter into other credit facilities or financing arrangements to
provide additional liquidity and to manage against foreign currency risk. The
Company currently believes that the existing lines of credit and cash generated
from operations will be sufficient to fund anticipated operations for the
foreseeable future.
On April 6, 2020, the Board of Directors declared a regular quarterly cash
dividend of seventy-nine cents ($0.79) per share on the Company's common stock.
The dividend is payable July 1, 2020 to shareholders of record June 5, 2020. At
this time, we expect to continue to pay dividends in the ordinary course.
Although we expect our borrowing costs to increase in the near term as a result
of credit market disruptions caused by the COVID-19 pandemic, we expect to be
able to continue to borrow funds at reasonable rates over the long term.
Finally, the CARES Act was enacted during March 2020 and includes several
significant provisions that we intend to take advantage of, including delaying
certain payroll tax payments, mandatory transition tax payments, and estimated
income tax payments.
At March 31, 2020, the Company's total average cost of debt was 2.00%, and the
Company remained in compliance with all covenants connected with its borrowings,
which covenants include, among others, a financial covenant to maintain a
certain leverage ratio of consolidated debt to consolidated EBITDA under our
credit facility.
On May 1, 2020, the Company entered into an amendment to each of the Amended and
Restated Syndicated Credit Facility Agreement and the Notes Purchase Agreement,
each dated as of October 30, 2017, to provide additional covenant flexibility on
account of the COVID-19 pandemic. In consideration of the increased covenant
flexibility, the Company agreed to certain interest rate increases under these
facilities. See Part II, Item 5. "Other Information" for detailed information
relating to the amended terms of the facilities.
Any failure to comply with our debt covenants or restrictions could result in a
default under our financing arrangements or could require us to obtain waivers
from our lenders for failure to comply with these restrictions. The occurrence
of a default that remains uncured or the inability to secure a necessary consent
or waiver could create cross defaults under other debt arrangements and have a
material adverse effect on our business, financial condition, results of
operations and cash flows.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, refer to
"Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of Part
II of our Annual Report on Form 10-K for the fiscal year ended December 31,
2019. Our exposure to market risk has not changed materially since December 31,
2019.
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