WABCO HOLDINGS INC. Executive Overview
The worldwide truck and bus, trailer, car and off-highway markets continued to weaken in the first quarter of 2020 due to the slowdown in the global economy which was amplified by the COVID-19 pandemic. This economic slowdown affected all regions in which we operate. We partially offset the impact of this deceleration through agile management of our variable cost structure and reduction of discretionary operating expenses. Our sales for the first quarter of 2020 decreased compared to one year ago by 20.1% on a reported basis and by 17.8% excluding foreign currency translation effects. The global production of new trucks and buses shrank by an estimated 24.9% driven by significant decreases inIndia , down 59.2% andEurope , down 23.1%. The global trailer market also experienced a significant decline, down 25.6% in the first quarter. We continued to leverage the WABCO Operating System to drive swift and flexible responses to these market disruptions and maintained focus on materials and conversion productivity during the first quarter. We benefit from our flexible operating model and we continue to invest in engineering to ensure the successful execution of the Company's long-term strategy.
Impact of COVID-19
InDecember 2019 , an outbreak of a novel strain of coronavirus, COVID-19, was reported to have surfaced inChina . Since then, COVID-19 has spread across the globe, including theU.S. ,Europe andAsia , regions in which the Company operates, and was recognized as a pandemic by theWorld Health Organization onMarch 11, 2020 . The impact of the COVID-19 pandemic accelerated during the first quarter and has reduced customer demand in most geographies. Government-mandated shutdowns across different geographies includingIndia andChina have also resulted in reduced production capacity but did not affect our ability to meet customer demands in the first quarter. The Company decreased the carrying value of one of its non-marketable equity investments during the first quarter following a downward revision of the entity's financial outlook and market multiples used to value the investment due to the COVID-19 pandemic. We do not currently expect any impairment on our other long-lived assets including other non-marketable equity investments, goodwill, tangible and intangible assets, and we will continue to monitor this in future periods. Due to the rapidly evolving nature of the COVID-19 pandemic and the fluid nature of local and national government responses, the Company is not able to predict when customer demand will begin to recover. The ultimate impact of this pandemic will be dependent on various factors including government responses that may restrict or reduce operational activity and capacity and the speed at which the global economy may recover. In response to the COVID-19 pandemic, many jurisdictions have implemented legislation or measures which the Company is in the process of evaluating or currently implementing to improve liquidity including, but not limited to, the deferral of income tax and payroll tax payments, payroll tax credits, refunds of value added taxes and government co-funding of wages for reduced 24
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hour programs. The Company has proactively taken measures to adjust its activities in affected regions to the level of demand as well as implemented decisive actions to reduce the level of expenses and capital expenditures while securing our technology leadership. The Company will leverage its flexible and lean operating model to adopt its variable costs structure as necessary in order to respond to future changes in the market environment.
Acquisitions and Divestitures
OnMarch 28, 2019 , WABCO entered into an Agreement (the Merger Agreement) and Plan of Merger withZF Friedrichshafen AG (ZF), a stock corporation organized and existing under the laws of theFederal Republic of Germany, andVerona Merger Sub Corp. , aDelaware corporation and indirect wholly owned subsidiary of ZF, pursuant to which ZF will acquire 100% of the issued and outstanding shares of WABCO common stock (the Merger). The Merger Agreement was adopted by WABCO's shareholders at theJune 27, 2019 special meeting of shareholders, whereby holders representing 68.4% of the Company's outstanding shares voted in favor of adopting the Merger Agreement. All approvals from regulatory authorities required to close the Merger have been received with the exception of theChinese State Administration for Market Regulation (SAMR). The consummation of the Merger remains subject to customary closing conditions and the remaining regulatory approval from the Chinese SAMR. The Company expects that the Merger will close in the second quarter of 2020 when this final regulatory clearance is anticipated to be received. In connection with theAntitrust Division of theUnited States Department of Justice's review of the Merger and pursuant to the settlement order approved by theU.S. District Court for the District of Columbia , WABCO is divesting the Company's steering components business,R.H. Sheppard Co., Inc. , for which the Company entered into a definitive agreement to sell onJanuary 30, 2020 . The closing of the divestiture is subject to the consummation of the Merger and other customary closing conditions. OnMarch 13, 2020 , the Company terminated its distribution agreement with Meritor Inc. (Meritor) to serve as the exclusive distributor for a certain range of WABCO Aftermarket products in theU.S. andCanada and also its non-exclusive distributor inMexico , and acquired these rights for$265.0 million . The purchase price was paid in cash and resulted in an increase to the intangible assets balance. Results of Operations Approximately 79% of our sales are outsidethe United States , and therefore changes in exchange rates can have a significant impact on the reported results of our operations, which are presented inU.S. dollars. Quarter-over-quarter changes in sales, cost of sales, gross profit and expenses for 2020 compared with 2019 are presented both with and without the effects of foreign currency translation. Changes in sales, cost of sales, gross profit and expenses excluding foreign exchange effects are calculated using current year sales, cost of sales, gross profit and expenses translated at prior year exchange rates. Presenting changes in sales, cost of sales, gross profit and expenses excluding the effects of foreign currency translation is not in conformity withU.S. GAAP, but management analyzes the data in this manner because it is useful to us in understanding the operating performance of our business. We believe this data is also useful to shareholders for the same reason. The changes in sales, cost of sales, gross profit and expenses excluding the effects of foreign exchange translation are not meant to be a substitute for measurements prepared in conformity withU.S. GAAP, nor to be considered in isolation. First Quarter Results of Operations for 2020 Compared with 2019 Three Months Excluding foreign Ended March 31, exchange translation * % change 2020 % change 2020 2019 reported adjusted adjusted (Amounts in millions) amount Sales$ 745.7 $ 932.9 (20.1 )%$ 767.3 (17.8 )% Cost of sales 533.8 660.0 (19.1 )% 549.1 (16.8 )% Gross profit 211.9 272.9 (22.4 )% 218.2 (20.0 )% Operating expenses 165.2 167.7 (1.5 )% 169.5 1.1 % Other non-operating expense, net (12.3 ) (5.9 ) 108.5 % (12.6 ) 113.6 % Income tax expense 7.4 12.1 (38.8 )% 7.8 (35.5 )%
* Amounts translated using average exchange rates for the three month period
endedMarch 31, 2019 25
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Table of Contents Sales Our sales for the first quarter of 2020 were$745.7 million , a decrease of 20.1% (17.8% excluding foreign currency translation effects) from$932.9 million in 2019, as a result of a further deceleration in truck and bus and trailer markets as well as an economic slowdown in all our key regions in part due to the COVID-19 pandemic. Total sales inEurope , our largest market, decreased 17.3% (14.8% excluding foreign currency translation effects) for the first quarter of 2020 . Our sales to truck and bus OEMs also declined 21.7% (19.9% excluding foreign currency translation effects) following the downturn in the production of new truck and buses of 23.1% year over year in the first quarter. We were able to outperform the declining market by increasing penetration of AMT, Air Disc Brake, ADAS and the ramp up of the E-APU technology. The production of trailers inEurope dropped by 27.2% year over year, however our sales were down 18.2% (15.5% excluding foreign currency translation effects), outperforming this market. Total sales inNorth America decreased 25.0% (24.7% excluding foreign currency translation effects). Our sales to truck and bus OEMs decreased 27.9% (27.6% excluding foreign currency translation effects) slightly below the truck and bus market of 25.6%. Our sales in car and off-highway markets saw a steep year over year decline driven by the lower car demand, decelerated by the uncertainty caused by the COVID-19 pandemic. Total sales inSouth America decreased 8.4% (increased 6.1% excluding foreign currency translation effects) while the truck and bus production remained flat. Our sales to truck and bus OEMs decreased by 9.9% (increased 3.3% excluding foreign currency translation effects), outperforming this market.
Total sales in
Total sales inChina decreased 17.5% (14.7% excluding foreign currency translation effects). Our sales to truck and bus OEMs declined by 10.5% (13.6% excluding foreign currency translation effects) while the production of new trucks and buses decreased by 19.7%. The outperformance in the truck and bus sales inChina was driven primarily by a one-time order for EBS with ESC and ECAS package for a bus customer and increased penetration of ADAS.
Total sales in
Total sales inKorea decreased 13.3% (9.2% excluding foreign currency translation effects), outperforming the production of trucks and buses which decreased 27.0%. Our sales to truck and bus OEMs grew by 0.7% (decreased 3.2% excluding foreign currency translation effects), with this outperformance being driven by the ramp up for a new platform launch at a major OEM. Sales inJapan increased 0.9% (decreased 0.2% excluding foreign currency translation effects) compared to a decrease in truck and bus production of 3.4% supported by a favorable model mix and a share of market gain in braking controls at a major OEM. WABCO's aftermarket sales, included in the geographic numbers provided above, decreased 14.5% (11.8% excluding foreign currency translation effects) in the first quarter of 2020, driven by the reduction in the usage of commercial vehicles due to the COVID-19 pandemic. Our aftermarket sales inEurope in the first quarter of 2020 declined by 13.1% (10.7% excluding foreign currency translation effects) and inNorth America of 27.8% (27.6% excluding foreign currency translation effects) on a year over year basis. 26
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Cost of Sales and Gross Profit
(Amounts in millions) Cost of Sales Gross Profit Cost of sales / gross profit for the three months ended March 31, 2019$ 660.0 $ 272.9 Increase/(decrease) due to: Sales pricing, volume and mix (165.5 ) Cost of materials (110.8 ) 110.8 Cost of manufacturing workforce (4.6 ) 4.6 Streamlining costs 1.2 (1.2 ) Warranty accruals 5.0 (5.0 ) Foreign exchange translational effects (15.2 ) (6.4 ) Other (1.7 ) 1.7 Net decrease (126.1 ) (61.0 ) Cost of sales / gross profit for the three months ended March 31, 2020$ 533.8 $ 211.9 Within cost of sales, our largest expense is material costs, which mainly represents the purchase of components and parts. The lower materials cost is primarily due to lower volume as a result of the decrease in sales levels. Our continued focus on materials productivity also contributed to this decrease in materials cost. Management uses material productivity as one of the internal measures of our cost reduction efforts. The decrease in gross profit is mainly driven by lower sales volumes, as well as sales price reductions of approximately 1.0%. These decreases were partially offset by reduced costs as discussed above.
Operating Expenses
Operating expenses include selling and administrative expenses, product engineering expenses and other operating expenses.
(Amounts in millions) Operating expenses for the three months endedMarch 31, 2019 $ 167.7 Increase/(decrease) due to: Labor inflation 3.8 Acquisition-related costs 1.2 Employee and stock compensation costs (1.8 ) Streamlining expenses (0.4 ) Foreign exchange translation (4.3 ) Other (1.0 ) Net decrease (2.5 )
Operating expenses for the three months ended
Acquisition-related costs comprise primarily of legal and financial advisory fees related to the Merger and the divestiture of Sheppard, as well as ramp-up costs incurred for the acquisition of distribution rights from Meritor.
Other non-operating expense, net
Other non-operating expenses increased by$6.4 million from$5.9 million for the first quarter of 2019 to$12.3 million for the first quarter of 2020. This increase is primarily driven by the sale of short-term investments where net gains were realized in the first quarter of 2019 but not in 2020, as well as a downward fair value adjustment to a non-marketable equity investment of$4.7 million in the first quarter of 2020. 27
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Table of Contents Income Taxes The income tax expense for the first quarter of 2020 was$7.4 million on pre-tax income of$34.8 million before adjusting for noncontrolling interest, compared with an income tax expense of$12.1 million on pre-tax income of$100.0 million before adjusting for noncontrolling interest in the first quarter of 2019. The decrease in income tax expense for this period is primarily the result of lower pretax income during the first quarter of 2020, partially offset by discrete tax benefits during the first quarter of 2019 related to reversal of a deferred tax liability of$6.5 million for earnings not permanently reinvested,$1.1 million related to amended state income tax filings, and$1.3 million related to vested stock awards. OnFebruary 14, 2019 , theGeneral Court of the European Union (the General Court) issued a judgment annulling aEuropean Commission decision which had previously declared the Belgium Excess Profit Ruling (EPR) regime as illegal and incompatible with European State Aid law. The General Court ruled that theEuropean Commission had wrongly considered that the Belgian provisions allowing tax exemptions of multinational companies' excess profit granted by means of rulings could constitute an illegal state aid scheme. OnApril 24, 2019 , theEuropean Commission appealed that decision. OnSeptember 16, 2019 , theEuropean Commission announced that they opened separate in-depth investigations to assess whether excess profit rulings granted byBelgium to thirty-nine multinational companies (including WABCO) gave those companies an unfair advantage over their competitors, in breach of European Union State aid rules. During the three months endedMarch 31, 2020 , there were no further developments on theEuropean Commission appeal of the General Court decision nor separate in-depth investigations into excess profit rulings. AtMarch 31, 2020 , the Company maintained a tax reserve of$29.6 million pending further European Court developments regarding European Union State Aid cases.
Liquidity and Capital Resources
The Company's cash generation in the first quarter was affected by the overall slowdown in the economy as well as the pay-out of cash incentive programs related to 2019. During the first quarter of 2020, we continued to focus on our collections from customers to efficiently manage our working capital. Our collection efforts did not fully offset the impact of reduced customer demand in the first quarter, resulting in net cash used by operating activities of$12.1 million for the three months endedMarch 31, 2020 compared to cash provided by operating activities of$58.8 million in the prior year. As discussed above, the COVID-19 pandemic may temporarily affect the Company's cash generation as we adjust to a new operational environment. Our sources of financing include cash flows from operations, cash and cash equivalents, and our revolving credit facility which remains committed until 2024. As ofMarch 31, 2020 , the Company had cash, cash equivalents, and short-term investments of$615.3 million as well as$600 million in unused lines under our revolving credit facility that is available for general corporate purposes. We have implemented actions to reduce our level of operating expenses and capital expenditures, and continue to evaluate all aspects of our spending. We are not dependent upon any one source of financing and we believe that our current liquidity position, along with the combination of funding sources available to us, will continue to provide us with adequate liquidity to support our operating activities and cash commitments for investing and financing activities. We also currently do not anticipate difficulties in maintaining compliance with our debt covenants. Cash Flows for the Three Months EndedMarch 31, 2020 Operating activities - Net cash used by operating activities was$12.1 million for the first three months of 2020 compared to net cash provided of$58.8 million for 2019. Cash used by operating activities for the first three months of 2020 consisted primarily of net income including noncontrolling interests of$27.4 million , increased by$52.8 million for non-cash charges mainly composed of depreciation and amortization, pension and post-retirement benefit expenses, deferred income tax benefit, change in fair value of non-marketable equity securities, stock compensation and non-cash interest expense and debt issuance cost amortization. This was offset by$92.3 million related to changes in operating assets and liabilities including$79.2 million related to increases in inventory,$19.7 million for guaranteed notes receivable,$1.4 million of payments made related to the Merger, as well as post-retirement benefit payments. Cash flow from operating activities for the first three months of 2019 consisted primarily of net income including noncontrolling interests of$87.9 million , increased by$47.5 million for non-cash charges mainly composed of depreciation and amortization, pension and post-retirement benefit expenses, change in fair value of non-marketable equity securities, stock compensation and non-cash interest expense and debt issuance cost amortization. This was partially offset by$76.6 million related to changes in operating assets and liabilities as well as pension contributions. 28
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Investing activities - Net cash used for investing activities amounted to$302.2 million in the first three months of 2020 compared to$10.1 million in the first three months of 2019. The increase in the cash used for investing activities is primarily due to$265.0 million paid to reacquire the exclusive distribution rights from Meritor for WABCO aftermarket products inthe United States andCanada . Capital expenditures in property, plant and equipment amounted to$33.8 million and$39.1 million in 2020 and 2019, respectively. On a full year basis, we expect capital expenditures to be below last year's level due to reduced capital spending in consideration of the COVID-19 pandemic. Aside from capital expenditures in tooling, equipment and software, we had investing cash flows related to our investments and redemptions in repurchase agreements and short-term investments as follows: Three Months
Ended
2020 2019
(Amounts in millions) Repurchase Short-term Repurchase Short-term
Agreements Investments Total Agreements Investments Total
Investments $ - $ 155.3 $ 155.3 $ 113.3 $ 154.6 $ 267.9
Sales and redemptions - 153.1 153.1 142.2 156.4 298.6
Net cash
received/(invested) $ - $ (2.2 ) $ (2.2 ) $ 28.9 $ 1.8 $ 30.7
Financing activities - Net cash used by financing activities amounted to $5.8
million for the three months ended March 31, 2020 compared to net cash provided
by financing activities of $51.9 million for the first three months of 2019. The
cash used by financing activities for the three months ended March 31, 2020 is
primarily related to payments of employee taxes withheld on equity award
vestings and dividends to noncontrolling interests, partially offset by proceeds
from stock option exercises. In 2019, the cash provided by financing activities
primarily results from the net borrowings of short term debt under the revolving
credit facilities of $85.2 million , partially offset by the shares we
repurchased for a total amount of $30.6 million . The Company suspended its share
repurchase program during the first quarter of 2019 due to the pending Merger
and we do not expect to reinstate the share repurchase program this year.
Schuldschein Loans
On March 22, 2018 , the Company entered through a European subsidiary into a
series of six individual senior unsecured loan agreements with an aggregate
principal amount of €300.0 million, as follows:
(Amounts in millions) Face value Coupon Maturity date
Fixed rate term loan -
Series A € 10.0 0.85% March 31, 2021
Fixed rate term loan -
Series B 60.0 1.15% March 31, 2022
Fixed rate term loan -
Series C 80.0 1.43% March 31, 2023
Floating rate term loan
- Series A 50.0 6-month EURIBOR plus 80 bps March 31, 2021
Floating rate term loan
- Series B 60.0 6-month EURIBOR plus 90 bps March 31, 2022
Floating rate term loan
- Series C 40.0 6-month EURIBOR plus 100 bps March 31, 2023
€ 300.0
EUR Senior Notes
On November 15, 2016 , the Company issued €440.0 million in aggregate principal
amount of senior unsecured notes, comprised of €190 million of 0.84% senior
unsecured notes due 2023, €80 million of 1.20% senior unsecured notes due 2026
and €170 million of 1.36% senior unsecured notes due 2028. The Company paid $1.4
million of debt issuance costs in connection with these senior unsecured notes.
Interest on these notes is payable semi-annually on January 1 and July 1 of each
year, and commenced on July 1, 2017 . The proceeds from the senior notes were
utilized to repay outstanding balances on the revolving credit facilities, fund
our share repurchase program, finance acquisitions and meet general financing
requirements.
Credit Facilities
Effective June 28, 2018 , the Company amended its existing multi-currency
unsecured revolving credit facility, increasing the maximum principal amount of
borrowings under the facility from $400 million to $600 million (the 2018
Facility), with an option to increase up to an additional $250 million . The 2018
Facility also extended the scheduled maturity date of our revolving credit
facility to June 28, 2023 , subject to two one-year extension options of which
the first one was exercised on May 28, 2019
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and extended the maturity date toJune 28, 2024 . Under the 2018 Facility, the Company may borrow, on a revolving basis, loans in an aggregate principal amount at any one time outstanding not in excess of$600.0 million , of which$600.0 million was available for borrowing atMarch 31, 2020 .
As of
The Company designated borrowings under its revolving credit facilities and SeniorEUR Notes to partially hedge the foreign currency exposure of its net investment in certain Euro-denominated wholly-owned subsidiaries. As ofMarch 31, 2020 , the Company designated borrowings under its Euro-denominated loans of €440.0 million ($483.9 million atMarch 31, 2020 exchange rates) as hedges of its net investment in these subsidiaries. For the three month periods endedMarch 31, 2020 and 2019, the Company recorded a gain of$6.8 million , net of taxes of$1.9 million , and a gain of$8.2 million , net of taxes of$2.3 million , respectively, in cumulative translation adjustment within AOCI. Aggregate Contractual Obligations The Company has contractual obligations for debt, operating leases, tax indemnifications, purchase obligations, unfunded pension and post-retirement benefit plans and tax liabilities that were summarized in a table of aggregate contractual obligations for the year endedDecember 31, 2019 disclosed in the Annual Report on Form 10-K. Subsequent toDecember 31, 2019 , the Company purchased the distribution rights held by Meritor for$265.0 million as discussed in Note 19 of the Condensed Consolidated Financial Statements. There have been no other material changes to the contractual obligations of the Company sinceDecember 31, 2019 . Information Concerning Forward Looking Statements Certain of the statements contained in this report (other than the historical financial data and other statements of historical fact), including, without limitation, statements as to management's expectations and beliefs, are forward-looking statements. These forward-looking statements were based on various facts and were derived utilizing numerous important assumptions and other important factors, and changes in such facts, assumptions or factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, financial condition, liquidity, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "strategies", "prospects", "intends", "projects", "estimates", "continues", "evaluates", "forecasts", "seeks", "plans", "goals", "potential", "may increase", "may fluctuate" and similar expression or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward looking in nature and not historical facts. This report includes important information as to risk factors in "Item 1A. Risk Factors", and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 . Many important factors could cause actual results to differ materially from management's expectations, including:
• the extent, duration and severity of the spread of the COVID-19 pandemic
and related impact on the economy, including the impact on our business,
financial condition and results of operations, the demand for our
products, and the measures taken by governmental authorities to address
the pandemic which may precipitate or exacerbate other risks and/or
uncertainties;
• the actual level of commercial vehicle production in our end-markets;
• adverse developments in the business of our key customers;
• periodic changes to contingent liabilities;
• adverse developments in general business, economic and political
conditions or any pandemic or escalation of hostilities on a national,
regional or international basis;
• changes in international or
interest rate fluctuations, foreign exchange rate fluctuations or
recessions in our markets;
• difficulties in international trade caused by geopolitical developments
including tariffs, sanctions and the United Kingdom's exit from the
European Union ;
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• cybersecurity threats, including the potential misappropriation of assets
or sensitive information, corruption of data or operational disruption;
• unpredictable difficulties or delays in the development of new product
technology;
• pricing changes to our products or those of our competitors, and other
competitive pressures on pricing and sales;
• our ability to receive components and parts from our suppliers of areasonable quality level or to obtain them at reasonable price levels due
to fluctuations in the costs of the underlying raw materials;
• our ability to access credit markets or capital markets on a favorable
basis or at all;
• our ability to service our debt obligations;
• changes in the environmental regulations that affect our current and
future products;
• competition in our existing and future lines of business and the financial
resources of competitors;
• our failure to comply with regulations and any changes in regulations;
• our failure to complete potential future acquisitions, collaborations and
cooperations or to realize benefits from completed acquisitions,
collaborations and cooperations;
• our inability to implement our growth plan;
• our ability to service our pension obligations;
• the loss of any of our senior management;
• difficulties in obtaining or retaining the management and other human
resource competencies that we need to achieve our business objectives;
• the success of, and costs and savings associated with, our current
streamlining initiatives;
• labor relations;
• our ability to complete and realize the tax benefits associated with
certain projects relating to the reorganization of our treasury function;
• our ability to mitigate any tax risks, including, but not limited to,
those risks associated with changes in legislation, tax audits and the
loss of the benefits associated with our tax rulings and incentives in
certain jurisdictions;
• risks inherent in operating in foreign countries, including exposure to
local economic conditions, government regulation, currency restrictions
and other restraints, changes in tax laws and rulings, expropriation,
political instability and diminished ability to legally enforce our
contractual rights;
• conditions to the closing of the Merger, including obtaining required
regulatory approvals, may not be satisfied or waived on a timely basis or
otherwise;
• a governmental entity or a regulatory body may prohibit, delay or refuse
to grant approval for the consummation of the Merger and may require
conditions, limitations or restrictions in connection with such approvals
that can adversely affect the anticipated benefits of the proposed Merger
or cause the parties to abandon the proposed Merger;
• the Merger may involve unexpected costs, liabilities or delays;
• our business may suffer as a result of uncertainty surrounding the Merger
or the potential adverse changes to business relationships resulting from
the proposed Merger;
• legal proceedings that may be initiated related to the Merger and the
outcome of any legal proceedings related to the Merger, which may be
adverse to us;
• we may be adversely affected by other general industry, economic, business
and/or competitive factors;
• there may be unforeseen events, changes or other circumstances that could
give rise to the termination of the Merger Agreement or affect the ability
to recognize benefits of the Merger;
• risks that the proposed Merger may disrupt current plans and operations
and present potential difficulties in employee retention as a result of
the Merger;
• risks related to diverting management's attention from WABCO's ongoing
business operations; and
• there may be other risks to consummation of the Merger, including the risk
that the Merger will not be consummated within the expected time period or
at all which may affect our business and the price of our common stock.
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We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.
Critical Accounting Policies and Estimates
Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Management believes the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Readers should also refer to Management's Discussion and Analysis and Notes 2 and 17 of Notes to the Consolidated Financial Statements for the year endedDecember 31, 2019 in the Company's Annual Report on Form 10-K for a description of the most significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ materially from management's estimates. After consideration of the COVID-19 pandemic, the Company calculated its interim income tax expense for the three months endedMarch 31, 2020 based on the actual year-to-date effective tax rate as discussed in Note 14 of Notes to the Condensed Consolidated Financial Statements. Aside from this and the adoption of ASC 326 as described in Note 6 of Notes to the Condensed Consolidated Financial Statements, there have been no significant changes in the Company's assumptions regarding critical accounting estimates during the first three months of 2020.
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