Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are based largely on current expectations and projections about future events and trends affecting the business, are not guarantees of future performance, and involve a number of risks, uncertainties and assumptions that are difficult to predict. In this report, the words “anticipates,” “believes,” “may,” “will,” “estimates,” “continues,” “anticipates,” “intends,” “forecasts,” “expects,” “plans,” “could,” “should,” “would,” “is likely” and similar expressions, as they relate to the business or to its management, are intended to identify forward-looking statements, but they are not exclusive means of identifying them. Unless the context otherwise requires, all references herein to “IS&S,” the “Registrant,” the “Company,” “we,” “us” or “our” are to Innovative Solutions and Support, Inc. and its consolidated subsidiaries.
The forward-looking statements in this report are only predictions, and actual events or results may differ materially. In evaluating such statements, a number of risks, uncertainties and other factors could cause actual results, performance, financial condition, cash flows, prospects and opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 and the following factors:
● market acceptance of the Company’s ThrustSense® full-regime Autothrottle, Vmc a Mitigation, FPDS, NextGen Flight Deck and COCKPIT/IP® or other planned products or product enhancements;
● continued market acceptance of the Company’s air data systems and products;
● the competitive environment and new product offerings from competitors;
● difficulties in developing, producing or improving the Company’s planned products or product enhancements;
● the deferral or termination of programs or contracts for convenience by customers;
● the ability to service the international market;
● the availability of government funding;
● the availability and efficacy of vaccines (including vaccine boosters) and their global deployment in response to the COVID-19 pandemic (including as a result of the impact of any newer variants or strains of SARS-CoV-2);
● the impact of general economic trends on the Company’s business, including as a result of the COVID-19 pandemic;
● disruptions in the Company’s supply chain, customer base and workforce, including as a result of the COVID-19 pandemic;
● the ability to gain regulatory approval of products in a timely manner;
● delays in receiving components from third-party suppliers;
● the bankruptcy or insolvency of one or more key customers;
● protection of intellectual property rights;
● the ability to respond to technological change;
● failure to retain/recruit key personnel;
● risks related to succession planning;
● a cyber security incident;
● risks related to our self-insurance program;
● potential future acquisitions;
● the costs of compliance with present and future laws and regulations;
● changes in law, including changes to corporate tax laws in the United States and the availability of certain tax credits; and
● other factors disclosed from time to time in the Company’s filings with the United States Securities and Exchange Commission (the “SEC”).
Except as expressly required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise after the date of this report. Results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may result in fluctuations in the price of the Company’s common stock.
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Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report, or to reflect the occurrence of unanticipated events. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A of the Securities Act of 1933, as amended (the “Securities Act”), and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Investors should also be aware that while the Company, from time to time, communicates with securities analysts, it is against its policy to disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.
Company Overview
Innovative Solutions and Support, Inc. (the “Company,” “IS&S,” “we” or “us”) was incorporated in Pennsylvania on February 12, 1988. The Company operates in one business segment as a systems integrator that designs, develops, manufactures, sells and services air data equipment, engine display systems, standby equipment, primary flight guidance, autothrottles and cockpit display systems for retrofit applications and original equipment manufacturers (“OEMs”). The Company supplies integrated Flight Management Systems (“FMS”), Flat Panel Display Systems (“FPDS”), FPDS with Autothrottle, air data equipment, Integrated Standby Units (“ISU”), ISU with Autothrottle and advanced Global Positioning System (“GPS”) receivers that enable reduced carbon footprint navigation.
The Company has continued to position itself as a system integrator, which capability provides the Company with the potential to generate more substantive orders over a broader product base. This strategy, as both a manufacturer and integrator, is designed to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation, commercial air transport, United States Department of Defense (“DoD”)/governmental and foreign military markets. This approach, combined with the Company’s industry experience, is designed to enable IS&S to develop high-quality products and systems, to reduce product time to market, and to achieve cost advantages over products offered by its competitors.
For several years the Company has been working with advances in technology to provide pilots with more information to enhance both the safety and efficiency of flying, and has developed its COCKPIT/IP® Cockpit Information Portal (“CIP”) product line, that incorporates proprietary technology, low cost, reduced power consumption, decreased weight, and increased functionality. The Company has incorporated Electronic Flight Bag (“EFB”) functionality, such as charting and mapping systems, into its FPDS product line.
The Company has developed an FMS that combines the savings long associated with in-flight fuel optimization in enroute flight management combined with the precision of satellite-based navigation required to comply with the regulatory environments of both domestic and international markets. The Company believes that the FMS, alongside its FPDS and CIP product lines, is well suited to address market demand driven by certain regulatory mandates, new technologies, and the high cost of maintaining aging and obsolete equipment on aircraft that will be in service for up to fifty years. The shift in the regulatory and technological environment is illustrated by the dramatic increase in the number of Space Based Augmentation System (“SBAS”) or Wide Area Augmentation System (“WAAS”) approach qualified airports, particularly as realized through Localizer Performance with Vertical guidance (“LPV”) navigation procedures. Aircraft equipped with the Company’s FMS, FPDS and SBAS/WAAS/LPV enabled navigator, will be qualified to land at such airports and will comply with Federal Aviation Administration (“FAA”) mandates for Required Navigation Performance, and Automatic Dependent Surveillance-Broadcast navigation. IS&S believes this will further increase the demand for the Company’s products. The Company’s FMS/FPDS product line is designed for new production and retrofit applications into general aviation, commercial air transport and military transport aircraft. In addition, the Company offers what we believe to be a state-of-the-art ISU, integrating the full functionality of the primary and navigation displays into a small backup-powered unit. This ISU builds on the Company’s legacy air data computer to form a complete next-generation cockpit display and navigation upgrade offering to the commercial and military markets.
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The Company has developed and received certification from the FAA on its NextGen Flight Deck featuring its ThrustSense® Integrated PT6 Autothrottle (“ThrustSense® Autothrottle”) for retrofit in the Pilatus PC-12. The NextGen Flight Deck features Primary Flight and Multi-Function Displays and ISUs, as well as an Integrated FMS and EFB System. The innovative avionics suite includes dual flight management systems, autothrottles, synthetic vision and enhanced vision. The NextGen enhanced avionics suite is available for integration into other business aircraft with Non-FADEC and FADEC engines.
The Company has developed, and in April 2019 received certification from the FAA for, its ThrustSense® Autothrottle for retrofit in the King Air, dual turbo prop PT6 powered aircraft. The autothrottle is designed to automate the power management for speed and power control including go-around. ThrustSense® also ensures aircraft envelope protection and engine protection during all phases of flight reducing pilot workload and increasing safety. The Company has signed a multi-year agreement with Textron Aviation, Inc. (“Textron”) to supply ThrustSense® on the King Air 360 and King Air 260. ThrustSense® is also available for retrofit on King Airs through Textron service centers and third-party service centers.
More recently, on December 9, 2019, the Company received certification from the FAA for a safety mode feature during an engine-out condition for its King Air ThrustSense® Autothrottle. LifeGuard™ provides critical Vmc a protection that proportionally reduces engine power to maintain directional control.
We believe the ThrustSense® Autothrottle is innovative in that it is the first autothrottle developed for a turbo prop that allows a pilot to automatically control the power setting of the engine. The autothrottle computes and controls appropriate power levels thereby reducing overall pilot workload. The system computes thrust, holds selected speed/torque, and implements appropriate speed and engine limit protection. When engaged by the pilot, the autothrottle system adjusts the throttles automatically to achieve and hold the selected airspeed guarded by a torque/temperature limit mode. The autothrottle system takes full advantage of the integrated cockpit utilizing weight and balance information for optimal control settings and enabling safety functions like a turbulence control mode.
The Company sells to both the OEM and the retrofit markets. Customers include various OEMs, commercial air transport carriers and corporate/general aviation companies, DoD and its commercial contractors, aircraft operators, aircraft modification centers, government agencies, and foreign militaries. Occasionally, IS&S sells its products directly to DoD; however, the Company sells its products primarily to commercial customers for end use in DoD programs. Sales to defense contractors are generally made on commercial terms, although some of the termination and other provisions of government contracts are applicable to these contracts. The Company’s retrofit projects are generally pursuant to either a direct contract with a customer or a subcontract with a general contractor to a customer (including government agencies).
Customers have been and may continue to be affected by changes in economic conditions both in the United States and abroad. Such changes may cause customers to curtail or delay their spending on both new and existing aircraft. Factors that can impact general economic conditions and the level of spending by customers include, but are not limited to, the impact of the ongoing COVID-19 pandemic, general levels of consumer spending, increases in fuel and energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, and other macroeconomic factors that affect spending behavior. Furthermore, spending by government agencies may be reduced in the future if tax revenues decline. If customers curtail or delay their spending or are forced to declare bankruptcy or liquidate their operations because of adverse economic conditions, the Company’s revenues and results of operations would be affected adversely. For example, in the 2020 fiscal year, certain of the Company’s customers temporarily suspended product deliveries as a result of the COVID-19 pandemic, and while these deliveries subsequently resumed, there is a possibility that the COVID-19 pandemic (including as a result of the impact of any newer variants or strains of SARS-CoV-2) will result in other suspensions, delays or order cancellations by the Company’s customers or suppliers.
On the other hand, the Company believes that in adverse economic conditions, customers that may have otherwise elected to purchase newly manufactured aircraft may be interested instead in retrofitting existing aircraft as a cost-effective alternative, thereby creating a market opportunity for IS&S.
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The ongoing COVID-19 pandemic is nevertheless a significant event, driver of market trends, and source of uncertainty that may ultimately have a direct or indirect material impact on the Company’s business, financial position, liquidity, or ability to service customers or maintain critical operations. In direct response to the COVID-19 pandemic, the Company has taken specific actions to seek to ensure the safety of its employees, including temperature monitoring, frequent sanitization of workspaces, observance of social distancing protocols, and other increased safety measures.
Cost of sales related to product sales comprises material, components and third-party avionics purchased from suppliers, direct labor, and overhead costs. Many of the components are standard, although certain parts are manufactured to meet IS&S specifications. The overhead portion of cost of sales primarily comprises salaries and benefits, building occupancy costs, supplies, and outside service costs related to production, purchasing, material control, and quality control. Cost of sales includes warranty costs.
Cost of sales related to Engineering Development Contracts (“EDC”) sales comprises engineering labor, consulting services, and other costs associated with specific design and development projects. These costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within cost of sales, with the reimbursement accounted for as a sale in accordance with the percentage-of-completion method or completed contract method of accounting. Company funded research and development (“R&D”) expenditures relate to internally-funded efforts for the development of new products and the improvement of existing products. These costs are expensed as incurred and reported as R&D expenses. The Company intends to continue investing in the development of new products that complement current product offerings and to expense associated R&D costs as they are incurred.
Selling, general and administrative expenses consist of sales, marketing, business development, professional services, salaries and benefits for executive and administrative personnel, facility costs, recruiting, legal, accounting and other general corporate expenses.
Critical Accounting Policies and Estimates
The discussion and analysis of financial condition and consolidated results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, IS&S management evaluates its estimates based upon historical experience and various other assumptions that it believes to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The Company believes that its critical accounting policies affect its more significant estimates and judgments used in the preparation of its consolidated financial statements. The Annual Report on Form 10-K for the fiscal year ended September 30, 2021 contains a discussion of these critical accounting policies. There have been no significant changes in the Company’s critical accounting policies since September 30, 2021. See also Note 1 to the unaudited condensed consolidated financial statements for the three months ended December 31, 2021 as set forth herein.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 2021 AND 2020
The following table sets forth the statements of operations data expressed as a percentage of total net sales for the periods indicated (some items may not add due to rounding):
Three Months Ended December 31,
2021
2020
Net sales:
Product
100.0
%
98.6
%
Engineering development contracts
0.0
%
1.4
%
Total net sales
100.0
%
100.0
%
Cost of sales:
Product
40.7
%
47.1
%
Engineering development contracts
0.0
%
0.2
%
Total cost of sales
40.7
%
47.3
%
Gross profit
59.3
%
52.7
%
Operating expenses:
Research and development
11.0
%
12.3
%
Selling, general and administrative
27.0
%
35.6
%
Total operating expenses
38.0
%
47.9
%
Operating income
21.3
%
4.8
%
Interest income
0.0
%
0.0
%
Other income
0.2
%
0.3
%
Income before income taxes
21.5
%
5.1
%
Income tax expense
4.6
%
0.2
%
Net income
16.9
%
4.9
%
Three Months Ended December 31, 2021 Compared to the Three Months Ended December 30, 2020
Net sales. Net sales were $6,695,778 for the three months ended December 31, 2021 compared to $4,869,652 for the three months ended December 31, 2020, an increase of 37.5%. Product sales increased $1,892,943 and EDC sales decreased $66,817 in the three months ended December 31, 2021 compared to the year ago quarter. This increase in product sales for the three months ended December 31, 2021 primarily resulted from increased shipments of displays for retrofit programs to commercial air transport customers as well as increased shipments to Pilatus under the Company’s PC-24 contract.
Cost of sales. Cost of sales increased $424,228, or 18.4%, to $2,728,057, or 40.7% of net sales, in the three months ended December 31, 2021, compared to $2,303,829 or 47.3% of net sales, in the three months ended December 31, 2020. The increase in cost of sales was primarily the result of an increase in product sales volume for the three months ended December 31, 2021 compared to the three months ended December 31, 2020. The Company’s overall gross margin was 59.3% and 52.7% for the three months ended December 31, 2021 and 2020, respectively. The increase in gross margin percentage for the three months ended December 31, 2021 reflects manufacturing efficiencies gained due to increased sales volume and a favorable product mix.
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Research and development. R&D expense increased $136,227, or 22.7%, to $736,525 in the three months ended December 31, 2021 from $600,298 in the three months ended December 31, 2020. As a percentage of net sales, R&D expense decreased to 11.0% of net sales in the three months ended December 31, 2021 from 12.3% of net sales in the three months ended December 31, 2020 reflecting increased net sales in the current quarter. The increase in R&D expense in the quarter was primarily the result of a higher proportion of efforts focused upon internal projects rather than product development programs that would be allocated to cost of sales.
Selling, general and administrative. Selling, general and administrative expense increased by $73,828 to $1,806,982 in the three months ended December 31, 2021 from $1,733,154 in the three months ended December 31, 2020. As a percentage of net sales, selling, general and administrative expenses decreased to 27.0% of net sales in the three months ended December 31, 2021 from 35.6% of net sales in the three months ended December 31, 2020. The increase in selling, general and administrative expense in the quarter was primarily the result of an increase in professional fees, trade show expenses, payroll and payroll related benefits.
Interest income. Interest income decreased by $783 to $96 in the three months ended December 31, 2021 from $879 in the three months ended December 31, 2020, mainly a result of decreased cash balance in the current year period compared to the same period in the prior year.
Other income. Other income is mainly composed of royalties earned and decreased by $154 to $16,238 in the three months ended December 31, 2021 compared to the same period in the prior year.
Income tax expense. The income tax expense for the three months ended December 31, 2021 was $307,490 as compared to an income tax expense of $9,497 for the three months ended December 31, 2020.
The effective tax rate for the three months ended December 31, 2021 was 21.3% and differs from the statutory tax rate primarily due to permanent items and state taxes.
The effective tax rate for the three months ended December 31, 2020 was 3.8% and differs from the statutory tax rate primarily due to net operating loss realization due to an increase in pretax book income and the release of the valuation allowance. This loss utilization both decreased the deferred tax asset and the valuation allowance. For the three months ended December 31, 2020, the valuation allowance decreased by approximately $40,000.
Net income. The Company reported net income for the three months ended December 31, 2021 of $1,133,058 compared to net income of $240,145 for the three months ended December 31, 2020. On a diluted basis, the net income per share was $0.07 for the three months ended December 31, 2021 compared to net income per share of $0.01 for the three months ended December 31, 2020.
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Liquidity and Capital Resources
The following table highlights key financial measurements of the Company:
December 31,
September 30,
2021
2021
Cash and cash equivalents
$
9,705,993
$
8,265,606
Accounts receivable
3,721,216
4,046,337
Current assets
18,915,162
17,690,411
Current liabilities
2,271,846
2,472,239
Contract liability
335,854
417,504
Other non-current liabilities (1)
25,214
28,680
Quick ratio (2)
5.91
4.98
Current ratio (3)
8.33
7.16
Three Months Ended December 31,
2021
2020
Cash flow activites:
Net cash provided by operating activites
$
1,517,735
$
1,684,326
Net cash used in investing activites
(77,348)
(72,846)
Net cash used in financing activites
—
(19,788,092)
(1) Excludes contract liability
(2) Calculated as: the sum of cash and cash equivalents plus accounts receivable, net, divided by current liabilities
(3) Calculated as: current assets divided by current liabilities
The Company’s principal source of liquidity has been cash flows from current year operations and cash accumulated from prior years’ operations. Cash is used principally to finance inventory, accounts receivable, contract assets, and payroll, as well as the Company’s known contractual and other commitments (including those described in Note 7, “Leases”). The Company’s existing cash balances and anticipated cash flows from operations are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months. Apart from what has been disclosed above, management is not aware of any trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources.
On September 4, 2020, the Company’s Board of Directors declared a special cash dividend in the amount of $0.65 per share, payable on October 1, 2020 to shareholders of record as of the close of business on September 15, 2020. The total dividend payment was approximately $11.2 million.
On December 10, 2020, the Company’s Board of Directors declared a special cash dividend in the amount of $0.50 per share, payable on December 30, 2020 to shareholders of record as of the close of business on December 21, 2020. The total dividend payment was approximately $8.6 million.
The declaration and payment of any dividend in the future will be at the discretion of the Company’s Board of Directors.
The ongoing COVID-19 pandemic is a significant event, driver of market trends, and source of uncertainty that may have a material impact on the Company’s liquidity, financial condition, capital resources, cash flows or operating results. In direct response to the COVID-19 pandemic, the Company has taken specific actions to seek to ensure the safety of its employees, including temperature monitoring, frequent sanitization of workspaces, observance of social distancing protocols, and other increased safety measures.
Operating activities
Net cash provided by operating activities for the three-month period ended December 31, 2021 resulted primarily from funding from net income of $1,133,058 and a decrease in accounts receivable of $325,121.
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Net cash provided by operating activities for the three-month period ended December 31, 2020 resulted primarily from a decrease in accounts receivable of $1,824,582, offset by a decrease in accrued expenses of $228,820.
Investing activities
Net cash used in investing activities was $77,348 for the three-month period ended December 31, 2021 and consisted primarily of the purchase of laboratory test equipment.
Net cash used in investing activities was $72,846 for the three-month period ended December 31, 2020 and consisted primarily of the purchase of computer, production and laboratory test equipment.
Financing activities
Net cash used in financing activities was $0 for the three-month period ended December 31, 2021.
Net cash used in financing activities was $19,788,092 for the three-month period ended December 31, 2020 and consisted primarily of dividends paid.
Summary
Future capital requirements depend upon numerous factors, including market acceptance of the Company’s products, the timing and rate of expansion of business, acquisitions, joint ventures and other factors. IS&S has experienced increases in expenditures since its inception and anticipates that expenditures will continue in the foreseeable future. The Company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months. However, the Company may need to develop and introduce new or enhanced products, respond to competitive pressures, invest in or acquire businesses or technologies, or respond to unanticipated requirements or developments. If insufficient funds are available, the Company may not be able to introduce new products or compete effectively.
Impact of the COVID-19 Pandemic
The ongoing global outbreak of coronavirus, which was declared a pandemic by the World Health Organization on March 11, 2020 and a national emergency by the President of the United States on March 13, 2020, has caused and is continuing to cause business slowdowns and shutdowns and turmoil in the financial markets both in the United States and abroad. IS&S is monitoring the impact of the COVID-19 pandemic on its business, including how it has impacted and will impact the Company’s employees, customers, suppliers and distribution channels. The Company has not yet seen a material impact from the COVID-19 pandemic on its business, financial position, liquidity, or ability to service customers or maintain critical operations. However, with the omicron variant and the possibility of the emergence of other new virus strains and vaccine supply constraints, we are unable to predict the ultimate extent to which the global COVID-19 pandemic may further impact our business operations, financial performance and results of operations. Furthermore, the significant market turbulence and disruption caused by the COVID-19 pandemic, as well as the quarantines and other governmental and non-governmental restrictions which have been imposed throughout the world in an effort to contain or mitigate the spread of the coronavirus, may continue for some time even after business restrictions are lifted and the threat of the coronavirus diminishes. As a result, the Company may face liquidity shortages, weaker product demand from its customers, disruptions in its supply chain, and/or staffing shortages in its workforce for the foreseeable future due to the direct and indirect effects of the COVID-19 pandemic.
Environmental, Social and Governance Considerations
In recent years, environmental, social and governance (“ESG”) issues have become an increasing area of focus for some of our shareholders, customers and suppliers. Management and the Company’s Board of Directors are committed to identifying, assessing, and understanding the potential impact of ESG issues and related risks on the Company’s business model, as well as potential areas of improvement.
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Among the ESG issues we support within the Company, we are committed to recruiting, motivating and developing a diversity of talent. We are an equal opportunity employer and a Vietnam Era Veterans’ Readjustment Assistance Act federal contractor. All qualified applicants receive consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability status, protected veteran status, or any other characteristic protected by law.
The nature of our business also supports long-term sustainability. Historically, a majority of the Company’s sales have come from the retrofit market, in which the Company, by making upgrades to improve the functionality and safety of existing machinery, facilitates the re-use and recycling of aircraft and equipment that might otherwise be scrapped as obsolete. The Company’s Global Positioning System (“GPS”) receivers also facilitate reduced carbon footprint navigation. The Company also plans to enhance its focus on the environmental impact of its operations.
Backlog
Backlog represents the value of contracts and purchase orders, less the revenue recognized to date on those contracts and purchase orders. Backlog activity for the three-month period ended December 31, 2021:
Three Months Ended
December 31, 2021
Backlog, beginning of period
$
9,121,585
Bookings, net
3,784,003
Recognized in revenue
(6,695,778)
Backlog, end of period
$
6,209,810
At December 31, 2021, the majority of the Company’s backlog is expected to be filled within the next twelve months. To the extent new business orders do not continue to equal or exceed sales recognized in the future from the Company’s existing backlog, future operating results may be impacted negatively.
Off-Balance Sheet Arrangements
The Company has no relationships with unconsolidated entities or financial partnerships, such as Special Purpose Entities or Variable Interest Entities, established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.