What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-12-19 compared with 2021-12-17 · 107 added, 60 removed, 176 unchanged (49% of the section changed)

26 unchanged sentences

Goodwill is not amortized but is tested for impairment annually at the reporting unit level, or more often if indications of impairment exist.

Our reporting units are one level below the Industrial Precision Solutions segment, and one level below the Advanced Technology Solutions segment.

We test goodwill in accordance with Accounting Standards Codification ("ASC") 350.

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To test for goodwill impairment, we estimate the fair value of each of our reporting units using a combination of the Income Approach and the Market Approach.

Effective in the fourth quarter of 2022, we realigned our former two operating segments into three:

Industrial Precision Solutions, Medical and Fluid Solutions, and Advanced Technology Solutions.

Previously, Advanced Technology Solutions was comprised of Medical and Fluid Solutions and the former Advanced Technology Solutions.

Our segment change did not have any impact on our reporting units.

The discounted cash flow method (Income Approach) uses assumptions for revenue growth, operating margin and working capital turnover that are based on management’s strategic plans tempered by performance trends and reasonable expectations about those trends.

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9.5% 497% $ 27,110

Advanced Technology Solutions Segment - Fluid

8.0% 215% $ 1,177,303

Advanced Technology Solutions Segment - Test & Inspection 11.0% 354% $ 87,248

Medical and Fluid Solutions Segment - Fluid

9.5% 237% $ 1,713,531

Pension plan in the United States - The measurement of the liabilities related to our domestic pension plan is based on management’s assumptions related to future factors, including interest rates, return on pension plan assets, compensation increases, mortality and turnover assumptions, and health care cost trend rates.

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The expected rate of return (long-term investment rate) on domestic pension assets used to determine net benefit costs was 5.75 percent in both 2022 and 2021.

The assumed rate of compensation increases used to determine the present value of our domestic pension plan obligations was 4.00 percent at both October 31, 2021 and October 31, 2020.

The assumed rate of compensation increases used to determine the present value of our domestic pension plan obligations was 4.30 percent and 4.00 percent at October 31, 2022 and October 31, 2021, respectively.

Annual expense amounts are determined based on the discount rate used at the end of the prior year.

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Any resulting differences are recorded in the period they become known.

CyberOptics Acquisition

On November 3, 2022, the Company completed the acquisition of CyberOptics Corporation (“CyberOptics”) pursuant to the terms of the Agreement and Plan of Merger, dated as of August 7, 2022, by and among the Company, Meta Merger Company and CyberOptics.

CyberOptics is a leading global developer and manufacturer of high-precision 3D optical sensing technology solutions.

The CyberOptics acquisition expanded our test and inspection platform, providing differentiated technology that expands our product offering in the semiconductor and electronics industries and will be reported in our Advanced Technology Solutions segment.

The all-cash transaction of approximately $380,000, net of cash acquired, was funded using our revolving credit facility and is not expected to have a material impact on our Consolidated Financial Statements

Results of Operations

Effective in the fourth quarter of 2022, we realigned and separated our two former operating segments into the following three operating segments:

Industrial Precision Solutions, Medical and Fluid Solutions, and Advanced Technology Solutions.

Previously, Advanced Technology Solutions was comprised of Medical and Fluid Solutions and the former Advanced Technology Solutions.

Existing product lines were unchanged as part of this new structure.

We made these changes to realign our management team and our operating segments.

We believe this realignment gives us better visibility into our medical and electronics platforms, which have grown significantly through both organic and acquisitive opportunities, including through the recent acquisition of CyberOptics.

We also believe that the three revised operating segments better reflect how we now manage the Company, allocate resources and assess performance of the businesses.

We also revised our geographic regions, such that the United States and Japan are now included in the Americas and Asia Pacific regions, respectively.

As such, our geographical regions as used throughout this annual report include the Americas (United States, Canada, Mexico and Central and South America), Asia Pacific (including Japan) and Europe.

Below is a detailed discussion comparison of our results of operations for the fiscal years ended October 31, 2022 and October 31, 2021 as well as a comparison of sales and segment results for fiscal years October 31, 2021 and October 31, 2020 due to our change in operating segments and geographic regions.

For a discussion of other changes from the fiscal year ended October 31, 2021 to the fiscal year ended October 31, 2020, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

2022 compared to 2021

Below is a detailed discussion comparison of our results of operations for the fiscal years ended October 31, 2021 and October 31, 2020.

For a discussion of changes from the fiscal year ended October 31, 2020 to the fiscal year ended October 31, 2019, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

As used throughout this annual report, geographic regions include the Americas (Canada, Mexico and Central and South America), Asia Pacific (excluding Japan), Europe, Japan, and the United States.

Worldwide sales for 2022 were $2,590,278, an increase of 9.7 percent from 2021 sales of $2,362,209.

The increase consisted of a 11.3 percent improvement in sales volume and favorable currency translation effects, which increased sales by 2.7 percent partially offset by a net 2.6 percent decrease from acquisitions and divestitures.

The increase consisted of a 10.8 percent improvement in organic sales, inclusive of pricing to offset inflation, and a net 3.3 percent increase from acquisitions and divestitures, partially offset by unfavorable currency translation effects that decreased sales by 4.4 percent.

Sales outside the United States accounted for 66.8 percent of total sales in 2022, as compared to 66.6 percent in 2021.

On a geographic basis, sales in the United States were $789,303, an increase of 4.5 percent from 2020.

The increase in sales consisted of a 8.3 percent increase in sales volume partially offset by a 3.8 percent decrease from acquisitions and divestitures.

Sales in the Asia Pacific region were $668,035, an increase of 19.1 percent from 2020, with volume increasing 16.7 percent and favorable currency effects of 4.2 percent.

partially offset by a 1.8 percent decrease from acquisitions and divestitures.

On a geographic basis, sales in the Americas region were $1,096,596, an increase of 13.2 percent from 2021, with sales volume increasing 10.9 percent and a net 2.8 percent increase from acquisitions and divestitures, partially offset by unfavorable currency effect of 0.5 percent.

Sales in the Asia Pacific region were $848,079, an increase of 9.3 percent from 2021, with sales volume increasing 11.0 percent and a net 3.2 percent increase from acquisitions and divestitures, partially offset by unfavorable currency effects of 4.9 percent.

Sales in Europe were $645,603, an increase of 4.6 percent from 2021.

The increase in sales consisted of a 11.4 percent volume increase and favorable currency effects of 5.7 percent partially offset by a 2.0 percent decrease from acquisitions and divestitures.

In the Americas region, sales were $179,807, an increase of 27.1 percent from 2020, with volume increasing 24.4 percent, favorable currency effects of 1.8 percent and a 0.9 percent increase from acquisitions and divestitures.

Sales in Japan were $107,572, a decrease of 15.0 percent from 2020, with volume decreasing 11.0 percent, unfavorable currency effects of 0.5 percent and a 3.5 percent decrease from acquisitions and divestitures.

The increase in sales

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consisted of a 10.7 percent organic sales volume increase and a net 3.9 percent increase from acquisitions and divestitures, partially offset by unfavorable currency effects of 10.0 percent.

Cost of sales were $1,163,742 in 2022, up 12.1 percent from $1,038,129 in 2021.

Gross profit, expressed as a percentage of sales, increased to 56.1 percent in 2021 from 53.3 percent in 2020.

The 2.8 percentage point increase in gross margin was driven by a favorable product mix impact, principally driven by a divestiture, of 1.9 percentage points and favorable sales volume leverage.

Gross profit, expressed as a percentage of sales, decreased to 55.1 percent in 2022 from 56.1 percent in 2021.

The 1.0 percentage point decrease in gross margin was driven by the impact of passing through inflationary cost increases, partially offset by a favorable divestiture impact.

Selling and administrative expenses were $724,176 in 2022, up from $708,953 in 2021.

The 2.2 percent increase was driven by base business growth of 2.6 percentage points due primarily to increased variable incentive compensation, partially offset by reductions resulting from structural cost reduction actions taken in 2020.

In addition, unfavorable currency translation effects increased costs by 2.1 percentage points.

These increases were offset by a divestiture impact of 2.5 percentage points.

The 2.1 percent increase was driven by a 5.3 percent first-year effect of an acquisition impact and base business growth of 0.3 percentage points, partially offset by favorable currency translation effects which decreased costs 3.5 percentage points.

Selling and administrative expenses as a percentage of sales decreased to 28.0 percent in 2022 from 30.0 percent in 2021.

Of the 2.7 percentage point decrease, a divestiture decreased expenses by 1.2 percentage points, while sales growth leverage contributed to the remaining percentage point improvement.

The 2.0 percentage point decrease was due primarily to sales growth leverage.

Operating profit as a percentage of sales increased to 27.1 percent in 2022 compared to 26.0 percent in 2021.

The 9.5 percent increase in operating margin was the result of improved operating results, specifically favorable absorption from higher sales volume and favorable product mix driven by a divestiture, and 2020 operating profit was negatively impacted by an assets held for sale impairment charge related to the 2021 product line divestiture.

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The 1.1 percent increase in operating margin was primarily driven by selling and administrative expense leverage due to the 10.8 percent increase in organic sales, partially offset by the impact of passing through inflationary cost increases.

Operating capacity for each of our segments can support fluctuations in order activity without significant changes in operating costs.

Operating margins for each segment were favorably impacted by a weaker dollar primarily against the Euro, Chinese Yuan, and Mexican Peso during 2021 as compared to 2020.

Operating margins for each segment were unfavorably impacted by a stronger dollar primarily against all major currencies during 2022 as compared to 2021.

Interest expense in 2022 was $22,413, a decrease of $3,078, or 12.1 percent, from 2021 .

The decrease was due to lower average debt levels compared to the prior year.

Other expense in 2021 was $17,610 compared to other expense of $17,577 in 2020 .

Included in 2021’s other expense were pension costs of $9,484 and $5,926 in foreign currency losses.

During 2022, the Company recognized non-cash pension settlement charges of $41,221 related to the purchase of an annuity contract to relieve the Company of certain U.S.

pension benefit obligations.

Other income in 2022 was $8,527 compared to other expense of $17,610 in 2021 .

Included in other income in 2022 w ere $6,270 in net foreign currency gains.

Included in the prior year’s other expense were pension costs of 9,484 and $5,926 in foreign currency losses.

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Our income tax provision for 2021 included a tax benefit of $5,982 due to our share-based payment transactions.

Net income in 2020 included a non-cash, assets held for sale impairment charge of $87,371 related to our commitment to sell our screws and barrels product line within the Adhesives reporting unit under our Industrial Precision Solutions segment and the tax benefit of the impairment was $15,254.

A portion of the impairment charge did not have related tax benefits.

Net income was $513,103, or $8.81 per diluted share, in 2022, compared to net income of $454,368, or $7.74 per diluted share, in 2021.

This represented a 12.9 percent increase in net income and a 13.8 percent increase in diluted earnings per share.

Net income in 2020 included a non-cash, assets held for sale impairment charge net of tax $72,117 related to the sale of the screws and barrels product line within the Adhesives reporting unit under our Industrial Precision Solutions segment.

The remaining increase of $2.24 per diluted share was primarily driven by sales growth and mix improvement.

The increase of $1.07 per diluted share was primarily driven by sales growth, strong gross margins and selling and administrative expense leverage.

Industrial Precision Solutions

Sales of the Industrial Precision Solutions segment were $1,337,242 in 2022, an increase of 7.2 percent, from 2021 sales of $1,246,947.

The increase was the result of an organic sales increase of 7.0 percent and a net acquisition / divestiture impact of 6.1 percent, partially offset by unfavorable currency effects of 5.9 percent.

Organic sales growth occurred in all product lines, except nonwovens.

Sales growth was generally strong across all product lines and in all regions, except for nonwovens which had sales declines in all regions.

Operating profit as a percentage of sales decreased to 32.5 percent in 2022 compared to 33.2 percent in 2021.

The 0.7 percentage point decline in operating margin was the result of the impact of passing through inflationary cost increases , partially offset by selling and administrative expense leverage due to the increase in sales .

Medical and Fluid Solutions

Sales of the Medical and Fluid Solutions segment were $690,177 in 2022, an increase of 7.6 percent from 2021 sales of $641,654.

The increase was the result of an organic sales increase of 9.7 percent partially offset by unfavorable currency effects that decreased sales by 2.1 percent.

Sales growth was generally strong across all product lines and in all regions.

Operating profit as a percentage of sales increased to 31.5 percent in 2022 compared to 30.9 percent in 2021.

The 0.6 percent percentage point improvement in operating margin was principally driven by greater selling and administrative expense leverage which contributed 1.6 percentage points, principally associated with the sales volume growth, partially offset by the impact of passing through inflationary cost increases .

Advanced Technology Solutions

Sales of the Advanced Technology Solutions segment were $562,859 in 2022, an increase of 18.8 percent from 2021 sales of $473,608.

The increase was the result of an organic sales increase of 22.4 percent partially offset by unfavorable currency effects that decreased sales by 3.6 percent.

Sales growth was strong across all product lines and in all regions.

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Operating profit as a percentage of sales increased to 23.7 percent in 2022 compared to 15.5 percent in 2021.

The 8.2 percentage point improvement in operating margin was driven by greater selling and administrative expense leverage associated with the sales volume growth.

2021 compared to 2020

Due to the change in our operating segments and geographical regions, the following comparison of our sales and segment results are being provided.

Worldwide sales for 2021 were $2,362,209, an increase of 11.4 percent from 2020 sales of $2,121,100.

The increase consisted of a 11.3 percent improvement in organic sales volume and favorable currency translation effects, which increased sales by 2.7 percent, partially offset by a net 2.6 percent decrease from acquisitions and divestitures.

On a geographic basis, sales in the Americas region were $969,110, an increase of 8.0 percent from 2020, with organic sales volume increasing 10.7 percent and a favorable currency effect of 0.4 percent, partially offset by a net 3.0 percent decrease from acquisitions and divestitures.

Sales in the Asia Pacific region were $775,607, an increase of 12.8 percent from 2020, with organic sales volume increasing 11.8 percent and favorable currency effects of 3.3 percent, partially offset by a net 2.3 percent decrease from acquisitions and divestitures.

Sales in Europe were $617,492, an increase of 15.1 percent from 2020.

The increase in sales consisted of a 11.4 percent organic sales volume increase and favorable currency effects of 5.7 percent, partially offset by a 2.0 percent decrease from acquisitions and divestitures.

Industrial Precision Solutions

Sales of the Industrial Precision Solutions segment were $ 1,246,947 in 2021, an increase of 9.1 percent, from 2020 sales of $ 1,143,423 .

The increase was the result of an organic sales volume increase of 11.7 percent and favorable currency effects that increased sales by 3.4 percent, partially offset by a divestiture impact of 6.0 percent.

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The 15.0 percentage point improvement in operating margin was the result of improved operating results, specifically favorable absorption from higher sales volume and favorable product mix driven by a divestiture, and 2020 operating profit negatively impacted by an assets held for sale impairment charge related to a divestiture.

Medical and Fluid Solutions

Sales of the Medical and Fluid Solutions segment were $ 641,654 in 2021, an increase of 13.6 percent from 2020 sales of $ 564,899 .

The increase was the result of an organic sales volume increase of 9.8 percent, a positive acquisition impact of 2.3 percent and favorable currency effects that increased sales by 1.5 percent.

Sales growth was generally strong across all product lines and in all regions.

Operating profit as a percentage of sales increased to 30.9 percent in 2021 compared to 26.6 percent in 2020 .

The 4.3 percentage point improvement in operating margin was principally driven by greater selling and administrative expense leverage associated with the sales volume growth.

Advanced Technology Solutions

Sales of the Advanced Technology Solutions segment were $473,608 in 2021, an increase of 14.7 percent from 2020 sales of $ 412,778 .

The increase was the result of an organic sales volume increase of 10.9 percent, favorable currency effects that increased sales by 1.9 percent and a 1.3 percent increase from acquisitions.

Sales growth was strong across all product lines and in all regions.

The increase was the result of an organic sales volume increase of 12.4 percent and favorable currency effects that increased sales by 2.3 percent.

Sales growth was generally strong across all product lines and in all regions.

Operating profit as a percentage of sales increased to 15.5 percent in 2021 compared to 10.0 percent in 2020 .

The 4.8 percentage point improvement in operating margin was principally driven by greater selling and administrative expense leverage which contributed 3.1 percentage points and was associated with the sales volume growth and cost structure simplification actions taken in 2020.

The 5.5 percentage point improvement in operating margin was principally driven by greater selling and administrative expense leverage associated with the sales volume growth and cost simplification actions taken in 2020.

Liquidity and Capital Resources

Cash and cash equivalents increased $91,679 in 2021 to $299,972 as of October 31, 2021 compared to $208,293 as of October 31, 2020.

Cash and cash equivalents decreased $136,515 in 2022 to $163,457 as of October 31, 2022 compared to $299,972 as of October 31, 2021.

Approximately 53 percent of our consolidated cash and cash equivalents were held at various foreign subsidiaries as of October 31, 2022.

On November 1, 2021, cash of $180,000 was used to fund the acquisition of NDC Technologies ("NDC") as disclosed in Note 19 to these Consolidated Financial Statements.

On November 3, 2022, net cash of $380,000 was used to fund the acquisition of CyberOptics as disclosed in Note 19 to these Consolidated Financial Statements.

Cash provided by operating activities was $513,131 in 2022, compared to $545,927 in 2021.

The primary sources were net income adjusted for non-cash income and expenses (consisting of depreciation and amortization, non-cash stock compensation, provision for losses on receivables, deferred income taxes, other non-cash expense, loss on sale of property, plant and equipment, and impairment loss on assets held for sale), which was $590,607 in 2021, compared to $455,490 in 2020.

Changes in working capital items provided cash of $29,011 compared to $45,113 provided in 2020 as increases in receivables and inventory were partially offset by increases in other liabilities.

In addition, pension cash contributions increased by $53,975 in 2021 compared to 2020 which are included in "Other - principally pension plan" in the Consolidated Statements of Cash Flows.

The primary sources were net income adjusted for non-cash income and expenses (consisting of depreciation and amortization, non-cash stock compensation, provision for losses on receivables, deferred income taxes, other non-cash expense, gain/loss on sale of property, plant and equipment, and non-cash pension settlement charges), which were $676,200 in 2022, compared to $590,607 in 2021.

Changes in working capital items used cash of $107,314 compared to $29,011 provided in 2021 as increases in receivables and inventory

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based on sales growth were partially offset by increases in other liabilities.

In addition, cash used for other operating items decreased by $17,936 in 2022 compared to 2021.

Cash used in investing activities was $222,761 in 2022, compared to $33,169 in 2021.

In the current year, no cash was used for acquisitions compared to $142,414 used in the prior year.

In 2022, $171,613 in cash was used, utilizing cash from operations, for acquisitions compared to $0 used in 2021.

Capital expenditures were $51,428 in 2022 compared to $38,303 in 2021.

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Cash used in financing activities was $416,006 in 2022, compared to $422,913 cash used in 2021.

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In 2022, cash of $262,869 was used for the purchase of treasury shares, up from $60,970 used in 2021.

Dividend payments were $97,683 in 2021, up from $88,347 in 2020 due to an increase in the annual dividend to $1.69 per share from $1.53 per share.

Dividend payments were $125,914 in 2022, up from $97,683 in 2021 due to an increase in dividend on our common shares, on an annual basis, to $2.18 per share from $1.69 per share.

Issuance of common shares related to employee benefit plans generated $12,124 of cash in 2022, down from $31,780 in 2021.

The following is a summary of significant changes by balance sheet caption from October 31, 2021 to October 31, 2022.

Inventories-net increased $50,162 due to increased business activity during the year.

Intangible assets-net decreased $50,219 due to amortization expense and the divestiture of our screws and barrels product line.

Pension obligations decreased $84,945 primarily due to pension contributions during the second and third quarters of 2021.

Receivables-net and inventories-net combined increased $104,127 due to increased business activity during the year.

Goodwill increased $131,129 due to the acquisition of NDC Technologies.

Intangible assets-net decreased $27,965 primarily due to amortization expense.

Pension obligations decreased $40,033 primarily due to a decrease in discount rates.

We have a $850,000 unsecured multi-currency revolving credit facility with a group of banks that expires in April 2024.

At October 31, 2022 and October 31, 2021, we had no balances outstanding under the revolving credit facility.

In connection with the CyberOptics acquisition, we borrowed under the revolving credit facility.

Our operating performance, balance sheet position and financial ratios for 2022 remained strong.

Long-term debt decreased $286,243 during 2021 primarily due to the full repayment of our term loan due 2024.

Total debt decreased $78,040 during 2022.

The Company is well-positioned to manage liquidity needs that arise from working capital requirements, capital expenditures, and contributions related to pension and postretirement obligations as well as principal and interest payments on our outstanding debt.

Primary sources of capital to meet these needs, as well as other opportunistic investments, are a combination of cash provided by operations and borrowings under our loan agreements.

Cash from operations, which when combined with our available borrowing capacity and ready access to capital markets, is expected to be more than adequate to fund our liquidity needs over the next year.

Contractual Obligations

The following table summarizes contractual obligations as of October 31, 2021:

The company believes it has the ability to generate and obtain adequate amounts of cash to meet its long-term needs for cash.

Contractual and Other Material Cash Obligations

The following table summarizes contractual and other material cash obligations as of October 31, 2022:

Payments Due by Period

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117,411 15,738 26,470 21,327 53,876

Contributions related to pension and postretirement

Contributions related to pension and postretirement benefits (3)

6,335 6,335 — — —

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(4) Purchase obligations primarily represent commitments for materials used in our manufacturing processes that are not recorded in our Consolidated Balance Sheet.

We believe that the combination of present capital resources, cash from operations and unused financing sources such as our credit facilities are more than adequate to meet cash requirements for 2021 and beyond.

We believe that the combination of present capital resources, cash from operations and unused financing sources such as our credit facilities, including our revolving credit facility, are more than adequate to meet cash requirements for the twelve months and the foreseeable future thereafter.

There are no significant restrictions limiting the transfer of funds from international subsidiaries to the parent company.

We are optimistic about our long-term growth opportunities in the diverse end markets we serve.

We also support our customers with parts and consumables, so a significant percentage of our revenue is recurring.

The combination of the Company's core strength in the direct-sales model and product innovation, combined with the Ascend Strategy, should deliver sustainable profitable growth.

We expect to deliver increased sales and earnings in 2022 compared to 2021.

New Accounting Standards

Refer to Note 2 to the Consolidated Financial Statements for further discussion of recently issued accounting standards.

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New Accounting Standards

There have been no new accounting standards issued which would require either disclosure or adoption during the current period by the Company.

Effects of Foreign Currency

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As a general rule, a weakening of the United States dollar relative to foreign currencies has a favorable effect on sales and net income, while a strengthening of the dollar has a detrimental effect.

In 2021, as compared with 2020, the United States dollar was generally weaker against foreign currencies.

If 2020 exchange rates had been in effect during 2021, sales would have been approximately $55,200 lower and third -party costs would have been approximately $24,600 lower.

In 2022, as compared with 2021, the United States dollar was generally stronger against foreign currencies.

If 2021 exchange rates had been in effect during 2022, sales would have been approximately $103,829 higher and third-party costs would have been approximately $68,788 higher.

In 2021, as compared with 2020, the United States dollar was generally weaker against foreign currencies.

If 2020 exchange rates had been in effect during 2021, sales would have been approximately $55,200 lower and third-party costs would have been approximately $24,600 lower.

These effects on reported sales do not include the impact of local price adjustments made in response to changes in currency exchange rates.

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currency exchange rates and devaluations;

possible acquisitions including the Company’s ability to complete and successfully integrate acquisitions, including integrating the acquisition of NDC;

possible acquisitions including the Company’s ability to complete and successfully integrate acquisitions, including the integration of CyberOptics;

the Company’s ability to successfully divest or dispose of businesses that are deemed not to fit with its strategic plan;

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the effects of changes in tax law;

and the possible effects of events beyond our control, such as political unrest, acts of terror, natural disasters and pandemics, including the current COVID-19 pandemic.

and the possible effects of events beyond our control, such as political unrest, including the conflict between Russia and Ukraine, acts of terror, natural disasters and pandemics, including the COVID-19 pandemic.

In light of these risks and uncertainties, actual events and results may vary significantly from those included in or contemplated or implied by such statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis