SMITH A O CORP - Quarter Report: 2020 March (Form 10-Q)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		39-0619790
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
11270 West Park Place, Milwaukee, Wisconsin		53224-9508
(Address of principal executive office)		(Zip Code)

Title of Each Class		Trading Symbol		Name of Each Exchange on Which Registered
Common Stock (par value $1.00 per share)		AOS		New York Stock Exchange

Large accelerated filer		☒		Accelerated Filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

		Three Months Ended March 31,
		2020				2019
Net sales		$	636.9			$	748.2
Cost of products sold			397.4				455.4
Gross profit			239.5				292.8
Selling, general and administrative expenses			173.8				184.7
Interest expense			2.2				2.0
Other income			(4.2	)			(5.5	)
Earnings before provision for income taxes			67.7				111.6
Provision for income taxes			16.0				22.3
Net Earnings		$	51.7			$	89.3
Net Earnings Per Share of Common Stock		$	0.32			$	0.53
Diluted Net Earnings Per Share of Common Stock		$	0.32			$	0.53
Dividends Per Share of Common Stock		$	0.24			$	0.22

		Three Months Ended March 31,
		2020				2019
Net earnings		$	51.7			$	89.3
Other comprehensive (loss) earnings
Foreign currency translation adjustments			(18.0	)			15.9
Unrealized net gains (losses) on cash flow derivative instruments, less related income tax provision of $(0.1) in 2020 and $ - in 2019			0.3				(0.1	)
Adjustment to pension liability, less related income tax provision of $(1.2) in 2020 and $(1.0) in 2019			3.6				2.9
Comprehensive Earnings		$	37.6			$	108.0

		(unaudited) March 31, 2020				December 31, 2019
Assets
Current Assets
Cash and cash equivalents		$	416.1			$	374.0
Marketable securities			135.6				177.4
Receivables			524.0				589.5
Inventories			312.3				303.0
Other current assets			54.5				56.5
Total Current Assets			1,442.5				1,500.4
Property, plant and equipment			1,159.5				1,156.9
Less accumulated depreciation			(622.2	)			(611.5	)
Net property, plant and equipment			537.3				545.4
Goodwill			542.6				546.0
Other intangibles			333.1				338.4
Operating lease assets			44.9				46.9
Other assets			82.6				80.9
Total Assets		$	2,983.0			$	3,058.0
Liabilities
Current Liabilities
Trade payables		$	442.0			$	509.6
Accrued payroll and benefits			47.7				64.6
Accrued liabilities			159.7				143.7
Product warranties			42.9				41.8
Debt due within one year			6.8				6.8
Total Current Liabilities			699.1				766.5
Long-term debt			335.6				277.2
Pension liabilities			20.8				27.8
Long-term operating lease liabilities			37.3				38.7
Other liabilities			273.9				281.0
Total Liabilities			1,366.7				1,391.2
Stockholders’ Equity
Class A Common Stock, $5 par value: authorized 27,000,000 shares; issued 26,175,113 and 26,180,885			130.9				130.9
Common Stock, $1 par value: authorized 240,000,000 shares; issued 164,532,481 and 164,526,709			164.5				164.5
Capital in excess of par value			516.1				509.0
Retained earnings			2,336.1				2,323.4
Accumulated other comprehensive loss			(362.4	)			(348.3	)
Treasury stock at cost			(1,168.9	)			(1,112.7	)
Total Stockholders’ Equity			1,616.3				1,666.8
Total Liabilities and Stockholders’ Equity		$	2,983.0			$	3,058.0

		Three Months Ended March 31,
		2020				2019
Operating Activities
Net earnings		$	51.7			$	89.3
Adjustments to reconcile net earnings to cash provided by (used in) operating activities:
Depreciation and amortization			20.1				20.2
Stock based compensation expense			9.0				8.7
Net changes in operating assets and liabilities:
Current assets and liabilities			(15.1	)			(86.3	)
Noncurrent assets and liabilities			(11.6	)			(10.3	)
Cash Provided by Operating Activities			54.1				21.6
Investing Activities
Capital expenditures			(12.8	)			(20.9	)
Investments in marketable securities			(38.8	)			(48.5	)
Net proceeds from sale of marketable securities			78.0				147.2
Cash Provided by Investing Activities			26.4				77.8
Financing Activities
Long-term debt incurred			58.5				63.0
Common stock repurchases			(56.7	)			(45.6	)
Net payments from stock option activity			(1.2	)			(1.6	)
Dividends paid			(39.0	)			(37.1	)
Cash Used i n Financing Activities			(38.4	)			(21.3	)
Net increase in cash and cash equivalents			42.1				78.1
Cash and cash equivalents - beginning of period			374.0				259.7
Cash and Cash Equivalents - End of Period		$	416.1			$	337.8

		Three Months Ended March 31,
		2020				2019
Class A Common Stock
Balance at the beginning of the year		$	130.9			$	131.0
Balance at end of period		$	130.9			$	131.0
Common Stock
Balance at the beginning of the year		$	164.5			$	164.5
Balance at end of period		$	164.5			$	164.5
Capital in Excess of Par Value
Balance at the beginning of the year		$	509.0			$	496.7
Issuance of share units			(6.5	)			(6.1	)
Vesting of share units			(1.6	)			(1.9	)
Stock based compensation expense			8.8				8.6
Exercises of stock options			(0.1	)			0.1
Stock incentives			6.5				6.1
Balance at end of period		$	516.1			$	503.5
Retained Earnings
Balance at the beginning of the year		$	2,323.4			$	2,102.8
Net earnings			51.7				89.3
Cash dividends on stock			(39.0	)			(37.1	)
Balance at end of period		$	2,336.1			$	2,155.0
Accumulated Other Comprehensive Loss (see Note 15)		$	(362.4	)		$	(332.1	)
Treasury Stock
Balance at the beginning of the year		$	(1,112.7	)		$	(827.2	)
Exercise of stock options			(1.1	)			(1.9	)
Shares repurchased			(56.7	)			(45.6	)
Vesting of share units			1.6				2.0
Balance at end of period		$	(1,168.9	)		$	(872.7	)
Total Stockholders’ Equity		$	1,616.3			$	1,749.2

2.	Revenue Recognition

2.	Revenue Recognition (continued)

		Three Months Ended March 31,
		2020				2019
North America
Water heaters and related parts		$	447.8			$	455.7
Boilers and related parts			41.5				42.6
Water treatment products (1)			43.6				23.5
Total North America			532.9				521.8
Rest of World
China		$	91.0			$	213.0
All other Rest of World			19.2				19.1
Total Rest of World			110.2				232.1
Inter-segment sales			(6.2	)			(5.7	)
Total Net Sales		$	636.9			$	748.2

3.	Acquisitions

April 8, 2019 (dollars in millions)
Current assets, net of cash acquired		$	9.7
Property, plant and equipment			8.6
Intangible assets			60.4
Goodwill			31.0
Total assets acquired			109.7
Current liabilities			(2.7	)
Net assets acquired		$	107.0

3.	Acquisitions (continued)

4.

Leases

		March 31, 2020				December 31, 2019
Liabilities
Short term: Accrued liabilities		$	11.5			$	12.0
Long term: Operating lease liabilities			37.3				38.7
Total operating lease liabilities		$	48.8			$	50.7
Less: Rent incentives and deferrals			(3.9	)			(3.8	)
Assets
Operating lease assets		$	44.9			$	46.9

4.	Leases (continued)

Lease Term and Discount Rate		March 31, 2020
Weighted-average remaining lease term			10 years
Weighted-average discount rate			3.95 %

(dollars in millions)
				Three months ended March 31,
Lease Expense		Classification		2020 (1)				2019 (2)
Operating lease expense		Cost of products sold		$	0.7			$	0.7
		Selling, general and administrative expenses			4.0				4.9

(1)

2020 includes short-term and variable lease expenses of $0.4 million and $0.4 million, respectively.

(2)

2019 includes short-term and variable lease expenses of $0.4 million and $0.8 million, respectively.

(dollars in millions)
		March 31, 2020
2020		$	10.2
2021			10.7
2022			9.2
2023			4.9
2024			3.8
After 2024			22.7
Total lease payments			61.5
Less: imputed interest			(12.7	)
Present value of operating lease liabilities		$	48.8

5.	Inventories

(dollars in millions)
		March 31, 2020				December 31, 2019
Finished products		$	142.8			$	136.8
Work in process			21.6				21.7
Raw materials			171.7				168.3
Inventories, at FIFO cost			336.1				326.8
LIFO reserve			(23.8	)			(23.8	)
Net inventory		$	312.3			$	303.0

6.	Product Warranties

(dollars in millions)
		Three Months Ended March 31,
		2020				2019
Balance at January 1		$	134.3			$	139.4
Expense			13.5				9.4
Claims settled			(12.5	)			(12.6	)
Balance at March 31		$	135.3			$	136.2

7.	Long-Term Debt

8.	Earnings per Share of Common Stock

		Three Months Ended March 31,
		2020				2019
Denominator for basic earnings per share - weighted average shares			161,871,788				167,803,794
Effect of dilutive stock options and share units			1,025,817				1,292,348
Denominator for diluted earnings per share			162,897,605				169,096,142

9.	Stock Based Compensation

		Weighted- Avg. Per   Share Exercise   Price				Number of   Options				Average Remaining Contractual Life				Aggregate Intrinsic Value (dollars in millions)
Outstanding at January 1, 2020		$	37.64				2,728,350
Granted			42.39				784,300
Exercised			15.04				(25,147	)
Forfeited			48.95				(56,261	)
Outstanding at March 31, 2020			38.71				3,431,242				7 years			$	19.1
Exercisable at March 31, 2020			34.25				2,162,932				5 years			$	19.1

		Three Months Ended March 31,
		2020				2019
Expected life (years)			5.7				5.6
Risk-free interest rate			1.6	%			2.7	%
Dividend yield			2.1	%			1.6	%
Expected volatility			23.6	%			22.8	%

9.	Stock Based Compensation (continued)

		Number of Units				Weighted-Average Grant Date Value
Issued and unvested at January 1, 2020			366,102			$	49.92
Granted			169,407				42.39
Vested			(100,735	)			49.21
Forfeited			(7,557	)			53.96
Issued and unvested at March 31, 2020			427,217				46.94

		Three Months Ended March 31,
		2020				2019
Service cost		$	0.4			$	0.4
Interest cost			5.7				7.9
Expected return on plan assets			(13.0	)			(14.3	)
Amortization of unrecognized loss			4.9				4.0
Amortization of prior service cost			(0.1	)			(0.1	)
Defined benefit plan income		$	(2.1	)		$	(2.1	)

(dollars in millions)
		Three Months Ended March 31,
		2020				2019
Net sales
North America		$	532.9			$	521.8
Rest of World			110.2				232.1
Inter-segment			(6.2	)			(5.7	)
		$	636.9			$	748.2
Segment earnings  ( losses )
North America		$	127.1			$	116.0
Rest of World			(42.2	)			12.3
			84.9				128.3
Corporate expense			(15.0	)			(14.7	)
Interest expense			(2.2	)			(2.0	)
Earnings before income taxes			67.7				111.6
Provision for income taxes			16.0				22.3
Net earnings		$	51.7			$	89.3

12.	Fair Value Measurements

(dollars in millions)
Fair Value Measurement Using		March 31, 2020				December 31, 2019
Quoted prices in active markets for identical assets (Level 1)		$	135.6			$	177.4
Significant other observable inputs (Level 2)			1.0				6.9

13.	Derivative Instruments

		March 31, 2020								December 31, 2019
		Buy				Sell				Buy				Sell
British pound		$	—			$	0.9			$	—			$	1.3
Canadian dollar			—				59.8				—				49.7
Euro			27.1				—				36.0				—
Mexican peso			23.4				—				18.6				—
Total		$	50.5			$	60.7			$	54.6			$	51.0

Derivatives in ASC 815 cash flow hedging relationships		Amount of gain (loss) recognized in other comprehensive loss on derivatives								Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings		Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings
		2020				2019						2020				2019
Foreign currency contracts		$	1.4			$	0.1			Cost of products sold		$	0.8			$	—
Commodities contracts			(0.2	)			(0.2	)		Cost of products sold			—				—
		$	1.2			$	(0.1	)				$	0.8			$	—

14.	Income Taxes

15.	Changes in Accumulated Other Comprehensive Loss by Component

(dollars in millions)
		Three Months Ended March 31,
		2020				2019
Cumulative foreign currency translation
Balance at beginning of period		$	(66.2	)		$	(64.9	)
Other comprehensive ( loss ) income before reclassifications			(18.0	)			15.9
Balance at end of period			(84.2	)			(49.0	)
Unrealized net gain (loss) on cash flow derivatives
Balance at beginning of period			0.2				(0.7	)
Other comprehensive loss before reclassifications			0.9				(0.1	)
Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $ 0.2 and $ - in 2020 and 2019, respectively)			(0.6	)			—
Balance at end of period			0.5				(0.8	)
Pension liability
Balance at beginning of period			(282.3	)			(285.2	)
Amounts reclassified from accumulated other comprehensive loss: (1)			3.6				2.9
Balance at end of period			(278.7	)			(282.3	)
Accumulated other comprehensive loss, end of period		$	(362.4	)		$	(332.1	)
(1)  Amortization of pension items:
Actuarial losses		$	4.9	(2)		$	4.0	(2)
Prior year service cost			(0.1	) (2)			(0.1	) (2)
			4.8				3.9
Income tax benefit			(1.2	)			(1.0	)
Reclassification net of income tax benefit		$	3.6			$	2.9

(2)	These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 10 - Pensions for additional details

16.	Commitments and Contingencies

Our company is comprised of two reporting segments: North America and Rest of World. Our Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers, tanks, and water treatment products. Both segments primarily manufacture and market in their respective region of the world. Our Rest of World segment also manufactures and markets air purifier products in China.

In January 2020, an outbreak of a novel coronavirus surfaced in Wuhan, China. As a result of the outbreak, the Chinese government required businesses to close and restricted certain travel within the country. In cooperation with the government authorities, our operations in China closed for approximately four weeks. As of the date of this filing, our operations in China have resumed but at below normal levels. In March 2020, was declared a global pandemic and we saw pressure in our other end markets worldwide. Through the date of this filing, our global manufacturing operations of essential water heating and water treatment products continue with minimal operating disruption. We shifted water heater production from Mexico to the U.S. in the short-term to minimize disruption due to the temporary closure of our Juarez, Mexico plant. As a result of the pandemic and in support of continuing our manufacturing efforts, we have undertaken numerous and meaningful steps to protect our employees, suppliers, and customers. These important steps, which in certain cases reduce efficiency, include making plant accommodations and reconfigurations to maintain social distancing, mask availability to all employees, during deep cleanings of our facilities and encouraging employees to work remotely where possible, among others. As we receive guidance from governmental authorities, we adjust our safety measures to meet or exceed those guidelines. The majority of our customers in the U.S. are also deemed essential under Cybersecurity and Infrastructure Security Agency (CISA) guidance and are operating their businesses under varying state and local governmental guidance.

Our global supply chain management team continues to monitor and manage our ability to operate effectively in response to various and differing orders by countries and states where we and our suppliers operate. To date, we have not seen any meaningful disruptions to our supply chain. Ongoing communications with our suppliers to identify and mitigate risk of potential disruptions and to manage inventory levels continue.

While we believe our balance sheet and capital position are strong, proactive management of discretionary spending and cost structure will continue. In addition, the members of our Board of Directors have voluntarily reduced the cash component of their board compensation by 25 percent and our chairman and chief executive officer (CEO) has voluntarily reduced his base salary by 25 percent. Our CEO’s staff, which includes our other named executive officers, have also volunteered a 15 percent reduction in base salary. We also continue to focus on our cost structure in China through headcount reductions, store closures, cuts in advertising and other cost saving measures.

We estimate that 85 percent of our water heater and boiler units sold in the U.S. relate to replacement business. While we expect that our replacement business in both water heating and boilers will provide a buffer in any economic downturn resulting from in a similar manner to what we have seen historically, the impacts of the pandemic on consumer spending are difficult to predict.

Sales in the first quarter of 2020 were $637 million, approximately 15 percent lower than sales of $748 million in the first quarter of 2019. Our lower sales in the first quarter of 2020 compared to the same period last year were primarily due to a 57 percent decline in sales in China, which was primarily driven by pandemic–related weak consumer demand. The decreased demand in China more than offset higher water treatment volumes in North America, including incremental sales of $16 million from our Water-Right, Inc. (Water-Right) acquisition, which we completed in April 2019.

Sales in the Rest of World segment were $110 million in the first quarter of 2020 or $122 million lower than sales of $232 million in the first quarter of 2019. Sales in China decreased 57 percent in U.S. dollar terms and 56 percent in local currency terms, primarily due to pandemic related weak consumer demand as the Chinese economy was essentially closed and mobility was restricted for the majority of the first quarter of 2020. China channel inventory levels declined slightly in the first quarter of 2020 from the levels at the end of 2019.

Rest of World segment losses were $42.2 million in the first quarter of 2020 compared to earnings of $12.3 million in the first quarter of 2019. The unfavorable impact from lower China sales and a higher mix of products, which have lower margins compared to higher priced products, was partially offset by the benefits from lower SG&A expenses in that region. As a result of these factors, the segment margin in the first quarter of 2020 was negative compared with 5.3 percent in the same quarter of 2019.

Cash provided by operations in the first quarter of 2020 was $54.1 million compared with $21.6 million provided during the same period last year. Lower earnings which were more than offset by lower working capital investment in the current period resulted in higher cash flow from operations. We believe the current environment is not conducive to reasonably forecast our cash flow for the full year 2020. We continue to monitor developments on an basis and have taken proactive measures to focus on cash, manage working capital and reduce costs.

In the second quarter of 2019, our Board of Directors approved adding three million shares of Common Stock to an existing discretionary share repurchase authority. Under the share repurchase program, our common stock may be purchased through a combination of a Rule automatic trading plan and discretionary purchases in accordance with applicable securities laws. The stock repurchase authorization remains effective until terminated by our Board of Directors, which may occur at any time, subject to the parameters of any Rule automatic trading plan that we may then have in effect. During the first quarter of 2020, we repurchased 1,348,391 shares of our stock at a total cost of $56.7 million. At March 31, 2020, we had 1,613,824 million shares remaining on the board share repurchase authority. Due to the uncertainty surrounding the impact of the global pandemic, we suspended our share repurchases on March 18, 2020.

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S., which requires the use of estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The critical accounting policies that we believe could have the most significant effect on our reported results or require complex judgment by management are contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form for the year ended December 31, 2019. We believe that at March 31, 2020, there has been no material change to this information.

Refer to in Note 1 – Basis of Presentation in the notes to our condensed consolidated financial statements included in Part 1 Financial Information.

This filing contains statements that the company believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “continue,” “guidance” or words of similar meaning. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this filing. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: negative impacts to the company’s business, including demand for its products, operations and work-force dislocation and disruption, supply chain disruption and liquidity as a result of the severity and duration of the pandemic; a failure to recover or a further weakening of the Chinese economy and/ or a failure to recover or a further decline in the growth rate of consumer spending or housing sales in China; negative impact to the company’s businesses from international tariffs and trade disputes; potential weakening in the high efficiency boiler segment in the U.S.; significant volatility in raw material availability and prices; inability of the company to implement or maintain pricing actions; a failure to recover or further weakening in U.S. residential or commercial construction or instability in the company’s replacement markets; foreign currency fluctuations; the company’s inability to successfully integrate or achieve its strategic objectives resulting from acquisitions; competitive pressures on the company’s businesses; the impact of potential information technology or data security breaches; changes in government regulations or regulatory requirements; and adverse developments in general economic, political and business conditions in key regions of the world. Forward-looking statements included in this filing are made only as of the date of this filing, and the company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the company, or persons acting on its behalf, are qualified entirely by these cautionary statements.

As is more fully described in our Annual Report on Form for the year ended December 31, 2019, we are exposed to various types of market risks, including currency and certain commodity risks. Our quantitative and qualitative disclosures about market risk have not materially changed since that report was filed. We monitor our currency and commodity risks on a continuous basis and generally enter into forward and futures contracts to minimize these exposures. The majority of the contracts are for periods of less than one year. Our Company does not engage in speculation in our derivative strategies. It is important to note that gains and losses from our forward and futures contract activities are offset by changes in the underlying costs of the transactions being hedged.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon this evaluation of these disclosure controls and procedures, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of March 31, 2020 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

On May 28, 2019, a putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of Wisconsin against the Company and certain of its current or former officers. Subsequently, on November 22, 2019, a consolidated amended complaint was filed by the lead plaintiff. This action, now captioned as City of Birmingham Retirement and Relief System v. A. O. Smith Corporation, et al., asserts securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), and seeks damages and other relief based upon the allegations in the complaint. On January 24, 2020, A. O. Smith and the other defendants moved to dismiss the consolidated amended complaint for failure to state a claim. Their motion is currently pending. A shareholder derivative lawsuit, captioned as Pierce v. A. O. Smith Corporation, et al. and based on similar allegations as the putative class action, was filed on August 20, 2019, also in the U.S. District Court for the Eastern District of Wisconsin. On November 6, 2019, the plaintiff in the derivative action moved to dismiss his lawsuit, and it in the U.S. District Court for the District of Delaware on November 12, 2019. The derivative action asserts claims under Sections 14(a) and 20(a) of the Exchange Act, as well as for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and seeks damages and other relief based upon the allegations in the complaint. On February 12, 2020, the parties filed a stipulation seeking to stay the derivative lawsuit pending resolution of the City of Birmingham lawsuit. On February 13, 2020, a second shareholder derivative suit, captioned as Jarozewski v. A. O. Smith Corporation, et al., was filed in the U.S. District Court for the District of Delaware, asserting claims under Sections 10(b), 14(a) and 20(a) of the Exchange Act, as well as for breach of fiduciary duty, unjust enrichment, and insider trading, and seeks damages and other relief based upon the allegations in the complaint. On April 1, 2020, the U.S. District Court for the District of Delaware, upon a joint stipulation filed by the parties, consolidated both the Pierce and Jarozewski derivative lawsuits and stayed the consolidated actions pending resolution of the City of Birmingham lawsuit.

There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form for the year ended December 31, 2019, except for the addition of the risk factor set forth below:

Our business, results of operations and financial condition may be adversely affected if a global public health pandemic, including the current pandemic, interferes with the ability of our employees, suppliers, and customers to perform our and their respective responsibilities and obligations relative to the conduct of our business and operations. The pandemic has significantly impacted economic activity and markets around the world, and it could have a material negative impact on our business and operations in numerous ways, including but not limited to those outlined below: