Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS OVERVIEW
We develop, market, license, host, and support enterprise software applications that help organizations transform how they engage with their customers and process work. We also license our low code Pega Platform™ for rapid application development to clients that wish to build and extend their business applications. Our cloud-architected portfolio of customer engagement and digital process automation applications leverages artificial intelligence (“AI”), case management, and robotic automation technology, built on our unified low code Pega Platform, empowering businesses to quickly design, extend, and scale their enterprise applications to meet strategic business needs.
Our target clients are Global 3000 organizations and government agencies that require applications to differentiate themselves in the markets they serve. Our applications achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. We deliver applications tailored to our clients’ specific industry needs.
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Cloud Transition
We are in the process of transitioning our business to sell software primarily through subscription arrangements, particularly Pega Cloud (“Cloud Transition”). Until we substantially complete our Cloud Transition, which we anticipate will occur in early 2023, we expect to continue to experience lower revenue growth and lower operating cash flow growth or negative cash flow. The actual mix of revenue and new arrangements in a given period can fluctuate based on client preferences.
See risk factor "If we fail to manage our transition to a more subscription-based business model successfully, our results of operations and/or cash flows could be negatively impacted." in Item 1A of this Annual Report for additional information.
Coronavirus (“COVID-19”)
As of December 31, 2020, COVID-19 has not had a material impact on our results of operations or financial condition.
COVID-19's ultimate impact on our operational and financial performance will depend on future developments, including the duration and spread of the outbreak and the impact of COVID-19 on our sales cycles, partners, vendors, and employees, all of which is uncertain and unpredictable. Our shift towards subscription-based revenue streams, the industry mix of our clients, the substantial size and available resources of our clients, and the critical nature of our products to our clients may reduce or delay the impact of COVID-19 on our business. However, it is not possible to estimate the ultimate impact that COVID-19 will have on our business at this time.
See “Coronavirus (“COVID-19”)” in Item 1A of this Annual Report for additional information.
Relocation of Corporate Headquarters
On February 12, 2021, we entered into an agreement with our landlord to vacate our Cambridge, Massachusetts corporate headquarters on October 1, 2021, in exchange for a one-time payment to us of $18 million. We expect to enter into a new lease agreement for a facility within the greater Boston area.
Performance metrics
We utilize several performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including:
Annual contract value (“ACV”) | Increased 21% since December 31, 2019
• ACV, as reported, represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV for term license and Pega Cloud contracts. Maintenance revenue for the quarter then ended is multiplied by four to calculate ACV for maintenance. Client Cloud ACV is composed of maintenance ACV and ACV from term license contracts. ACV is a performance measure that we believe provides useful information to our management and investors, particularly during our Cloud Transition. Reported amounts have not been adjusted for changes in foreign exchange rates. Foreign currency contributed 1%-2% to ACV growth in 2020.
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Remaining performance obligations (“Backlog”) | Increased 28% since December 31, 2019
• Backlog represents contracted revenue that has not yet been recognized and includes deferred revenue and non-cancellable amounts expected to be invoiced and recognized as revenue in future periods.
•
Pega Cloud revenue | Increased 56% since 2019
• Pega Cloud revenue is revenue as reported under U.S. GAAP for cloud contracts.
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RESULTS OF OPERATIONS
Revenue
Cloud Transition
We are in the process of transitioning our business to sell software primarily through subscription arrangements, particularly Pega Cloud. Revenue growth has and is expected to continue to be slower during this transition Revenue from Pega Cloud arrangements is typically recognized over the contract term. In contrast, revenue from license sales is generally recognized upfront when the license rights become effective.
(Dollars in thousands) 2020 2019 Change
Pega Cloud $ 208,268 20 % $ 133,746 15 % $ 74,522 56 %
Maintenance 296,709 30 % 280,580 30 % 16,129 6 %
Term license 266,352 26 % 199,433 22 % 66,919 34 %
Subscription (1)
$ 771,329 76 % $ 613,759 67 % 157,570 26 %
Perpetual license 28,558 3 % 80,015 9 % (51,457) (64) %
Consulting 217,630 21 % 217,609 24 % 21 — %
$ 1,017,517 100 % $ 911,383 100 % $ 106,134 12 %
(1) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).
The change in total revenue since 2019 generally reflects the impact of our Cloud Transition. Additional contributing factors were:
• An increasing portion of our term license contracts include multi-year committed maintenance periods instead of annually renewable maintenance periods. Under such arrangements, a larger portion of the total contract value is recognized as maintenance revenue over the contract term rather than as term license revenue upon effectiveness of the license rights. In 2020, multi-year committed maintenance contributed $10.2 million to maintenance revenue growth and reduced term revenue growth by $20.8 million.
• Maintenance renewal rates remained over 90% in 2020.
• The slight increase in consulting revenue in 2020 was primarily due to increased billable hours, which offset the impact of reduced billable travel expenses due to COVID-19. As part of our long-term strategy, we intend to continue growing and increasingly leveraging our ecosystem of partners on future implementation projects, potentially reducing our future consulting revenue growth rate.
Gross profit
(Dollars in thousands) 2020 2019 Change
Software license $ 291,982 99 % $ 275,792 99 % $ 16,190 6 %
Maintenance 274,398 92 % 254,924 91 % 19,474 8 %
Pega Cloud 131,693 63 % 67,918 51 % 63,775 94 %
Consulting 8,531 4 % 2,727 1 % 5,804 213 %
$ 706,604 69 % $ 601,361 66 % $ 105,243 18 %
• The increase in gross profit in 2020 was primarily due to cost-efficiency gains as Pega Cloud grows and scales as a result of our Cloud Transition and overall revenue growth.
• The increase in consulting gross profit in 2020 was primarily due to a decrease in travel and entertainment expenses and an increase in consultant utilization. Consultant utilization is impacted by several factors, including the timing of new implementation projects and our scope and level of involvement in these projects compared to that of our consulting partners and enabled clients.
Operating expenses
2020 2019 Change
(Dollars in thousands) % of Revenue % of Revenue
Selling and marketing $ 545,693 54 % $ 474,459 52 % $ 71,234 15 %
Research and development $ 236,986 23 % $ 205,210 23 % $ 31,776 15 %
General and administrative $ 67,452 7 % $ 56,570 6 % $ 10,882 19 %
• The increase in selling and marketing in 2020 was primarily due to an increase in compensation and benefits of $97.2 million, attributable to increases in headcount and equity compensation, partially offset by a decrease in travel and entertainment of $27.2 million due to COVID-19. The increase in headcount reflects our efforts to increase our sales capacity to deepen relationships with existing clients and target new accounts.
• The increase in research and development in 2020 was primarily due to an increase in compensation and benefits of $30.2 million, attributable to increases in headcount and equity compensation. The increase in headcount reflects additional investments in the development of our products, particularly for Pega Cloud.
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• The increase in general and administrative in 2020 was primarily due to an increase in compensation and benefits of $4.0 million, attributable to increases in headcount and equity compensation to support the growth in our operations and an increase in professional services fees of $4.2 million.
Other income (expense), net
(Dollars in thousands) 2020 2019 Change
Foreign currency transaction gain (loss) 3,704 (2,335) $ 6,039 *
Interest income 1,223 2,020 (797) (39) %
Interest expense (19,356) (212) (19,144) (9,030) %
Gain on capped call transactions 31,697 — 31,697 *
Other (loss) income, net 1,370 559 811 145 %
$ 18,638 $ 32 $ 18,606 58,144 %
* not meaningful
• The change in foreign currency transaction gain (loss) in 2020 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with our foreign currency-denominated cash, accounts receivable, and intercompany receivables and payables held by our United Kingdom (“U.K.”) subsidiary.
• The decrease in interest income in 2020 was due to the significant decline in market interest rates despite the significant increase in our interest-bearing investment balances.
• The increase in interest expense in 2020 was due to our issuance of $600 million in aggregate principal amount of the Notes on February 24, 2020. See "Note 10. Debt" in Item 8 of this Annual Report for additional information.
Interest expense related to the Notes:
Year Ended
December 31, Change
(in thousands) 2020 2019
Contractual interest expense (0.75% coupon)
$ 3,825 $ — $ 3,825
Amortization of debt discount 12,898 — 12,898
Amortization of issuance costs 1,915 — 1,915
$ 18,638 $ — $ 18,638
• The increase in the gain on capped call transactions in 2020 was due to fair value adjustments on the Capped Call Transactions. See "Note 10. Debt" in Item 8 of this Annual Report for additional information.
• The increase in other (loss) income, net in 2020 was due to a gain from our venture investments portfolio.
(Benefit from) income taxes
(Dollars in thousands) 2020 2019
(Benefit from) income taxes $ (63,516) $ (44,413)
Effective income tax benefit rate 51 % 33 %
During 2020, the increase in our effective income tax benefit rate was primarily due to an increase in excess tax benefits from stock-based compensation and a carryback claim benefit due to the Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”). See "Note 16. Income Taxes" in Item 8 of this Annual Report for additional information.
Stock-based compensation increases the variability of our effective tax rates. The impact of stock-based compensation on a given period depends on our profitability, the attributes of our stock compensation awards we grant, and award holders' exercise behavior.
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LIQUIDITY AND CAPITAL RESOURCES
(in thousands) 2020 2019
Cash provided by (used in)
Operating activities $ (563) $ (42,165)
Investing activities (321,683) 70,074
Financing activities 423,448 (74,258)
Effect of exchange rate on cash and cash equivalents 2,334 290
Net increase (decrease) in cash and cash equivalents $ 103,536 $ (46,059)
December 31,
(in thousands)
2020 2019
Held in U.S. entities $ 399,138 $ 23,437
Held in foreign entities 66,030 44,926
Total cash, cash equivalents, and marketable securities $ 465,168 $ 68,363
We believe that our current cash, cash flow from operations, and borrowing capacity will be sufficient to fund our operations, stock repurchases, and quarterly cash dividends for at least the next 12 months. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our growth, operating results, and the investments required to respond to the possible increased demand for our services. If we require additional capital resources to grow our business, we may seek to finance our operations from available funds or additional external financing.
If it became necessary to repatriate foreign funds, we may be required to pay U.S. and foreign taxes upon repatriation. Due to the complexity of income tax laws and regulations, and the Tax Reform Act’s effects, it is impracticable to estimate the amount of taxes we would have to pay. See risk factor "If it becomes necessary or desirable to repatriate any of our foreign cash balances to the United States, we may be subject to increased taxes, other restrictions, and limitations" in Item 1A of this Annual Report for additional information.
Cash (used in) operating activities
We are in the process of transitioning our business to sell software primarily through subscription arrangements, particularly Pega Cloud. This transition has and is expected to continue to impact our billings and resulting timing of cash collections. Pega Cloud and term license arrangements are generally billed and collected over the contract term while perpetual license arrangements are generally billed in full and collected upfront when the license rights become effective. As client preferences continue to shift in favor of Pega Cloud arrangements, we could continue to experience slower operating cash flow growth, or negative cash flow, in the near term
In 2020, COVID-19 did not have a material impact on our cash flows from operations. See “Coronavirus (“COVID-19”)” in Item 1A. of this Annual Report for additional information.
The change in cash (used in) operating activities in 2020 was primarily due to improved cash collections. The increased cash collections were partially offset by increased costs as we accelerated investments in our Pega Cloud offering and selling and marketing activities to support future growth.
Cash (used in) provided by investing activities
The change in cash (used in) provided by investing activities in 2020 was primarily driven by purchases of financial instruments and property and equipment investments for our offices.
Cash provided by (used in) financing activities
Convertible senior notes
In February 2020, we issued $600 million in aggregate principal amount of our convertible senior notes (the “Notes”) due March 1, 2025, which provided proceeds as follows:
(in thousands) Amount
Principal $ 600,000
Less: issuance costs (14,527)
Less: Capped Call Transactions (51,900)
$ 533,573
A portion of the proceeds of the Notes was used to fund the Capped Call Transactions, with the remainder to be used for working capital and other general corporate purposes. The Notes mature on March 1, 2025; however, under certain circumstances, holders may surrender their Notes for conversion prior to the maturity date. We may settle conversion by paying or delivering, as applicable, cash, shares of our common
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stock or a combination of cash and shares of our common stock. See "Note 10. Debt" in Item 8 of this Annual Report for additional information.
Credit facility
In November 2019, and as amended as of February 2020, July 2020, and September 2020, we entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC”). As of December 31, 2020, we had no outstanding borrowings under the Credit Facility. See "Note 10. Debt" in Item 8 of this Annual Report for additional information.
Stock repurchase program
Changes in the remaining stock repurchase authority:
(in thousands) 2020
December 31, 2019 $ 45,484
Authorizations (1)
20,516
Repurchases (2)
(28,274)
December 31, 2020 $ 37,726
(1) On June 15, 2020, we announced that our Board of Directors extended the current stock repurchase program’s expiration date to June 30, 2021 and increased the remaining common stock repurchase authority to $60 million.
(2) Purchases under this program have been made on the open market.
Common stock repurchases
2020 2019
(in thousands) Shares Amount Shares Amount
Tax withholdings for net settlement of equity awards 725 $ 75,560 645 $ 44,857
Stock repurchase program 278 28,274 333 21,136
1,003 $ 103,834 978 $ 65,993
During 2020 and 2019, instead of receiving cash from the equity holders, we withheld shares with a value of $59.6 million and $41.7 million, respectively, for the exercise price of options. These amounts have been excluded from the table above.
Dividends
(in thousands) 2020 2019
Dividend payments to stockholders $ 9,628 $ 9,486
We currently intend to pay a quarterly cash dividend of $0.03 per share. However, the Board of Directors may terminate or modify the dividend program at any time without prior notice.
Contractual obligations
As of December 31, 2020, our contractual obligations were:
Payments due by period
(in thousands) 2021 2022 2023 2024 2025 and after Other Total
Convertible senior notes (1) $ 4,500 $ 4,500 $ 4,500 $ 4,500 $ 601,488 $ — $ 619,488
Purchase obligations (2) 59,685 56,829 7,669 747 351 — 125,281
Operating lease obligations 22,164 21,747 21,599 7,683 14,431 — 87,624
Investment commitments (3) 500 — — — — — 500
Liability for uncertain tax positions (4) — — — — — 4,680 4,680
$ 86,849 $ 83,076 $ 33,768 $ 12,930 $ 616,270 $ 4,680 $ 837,573
(1) Includes principal and interest.
(2) Represents the fixed or minimum amounts due under purchase obligations for hosting services and sales and marketing programs.
(3) Represents the maximum funding under existing venture investment agreements. Our investment agreements generally allow us to withhold unpaid funds at our discretion.
(4) We are unable to reasonably estimate the timing of the cash outflow due to uncertainties in the timing of the effective settlement of tax positions.
A detailed discussion and analysis of the 2019 year-over-year changes can be found in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2019.
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CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGMENTS
Management’s discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. and the rules and regulations of the SEC for annual financial reporting. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and beliefs of what could occur in the future, given the available information.
We believe that, of our significant accounting policies, described in “Note 2. Significant Accounting Policies” in Item 8 of this Annual Report, the following accounting policies are most important to the portrayal of our financial condition and require the most subjective judgment. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements.
Revenue recognition
Our contracts with clients typically contain promises by us to provide multiple products and services. Specifically, contracts associated with Pega Platform sales and other software applications, sold either as licenses to use functional intellectual property or as a cloud-based solution, typically include consulting services. Determining whether such products and services within a client contract are considered distinct performance obligations that should be accounted for separately requires significant judgment. We review client contracts to identify all separate promises to transfer goods and services that would be considered performance obligations. Judgment is also required in determining whether an option to acquire additional products and services within a client contract represents a material right that the client would not receive without entering into the contract.
A contract modification is a legally binding change to the scope, price, or both of an existing contract. Contract modifications are reviewed to determine whether they should be accounted for as part of the original contract or as a separate contract. This determination requires significant judgment, which could impact the timing of revenue recognition. We typically account for contract modifications prospectively as a separate contract. The additional performance obligation(s) in our contract modifications are generally distinct and priced at their stand-alone selling price.
We allocate the transaction price to the distinct performance obligations, including options in contracts determined to represent a material right, based on each performance obligation's relative stand-alone selling price. Judgment is required in estimating stand-alone selling prices. We maximize the use of observable inputs by maintaining pricing analyses that consider our pricing policies, historical stand-alone sales when they exist, and historical renewal prices charged to clients. We have concluded that the stand-alone selling prices of certain performance obligations, specifically the stand-alone selling prices of software licenses and Pega Cloud arrangements, are highly variable. In these instances, we estimate the stand-alone selling prices using the residual approach, determined based on total transaction price minus the stand-alone selling price of other performance obligations promised in the contract. We update our stand-alone selling price analysis periodically, including a re-assessment of whether the residual approach used to determine the stand-alone selling prices for software licenses and Pega Cloud arrangements remains appropriate.
Changes in the assumptions or judgments used in determining the performance obligations in client contracts and stand-alone selling prices could significantly impact the timing and amount of revenue we report in a particular period.
Goodwill and intangible assets impairment
Our goodwill and intangible assets result from our previous business acquisitions. Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually or as circumstances indicate their value may no longer be recoverable. We do not carry any intangible assets with indefinite useful lives other than goodwill. We perform our annual goodwill impairment test as of November 30th. To assess if goodwill is impaired, we first perform a qualitative assessment to determine whether further impairment testing is necessary. If based on the qualitative assessment, we consider it more-likely-than-not that our reporting unit's fair value is less than its carrying amount, we perform a quantitative impairment test. An excess of carrying value over fair value would indicate that goodwill may be impaired. We periodically reevaluate our business and have determined that we have one operating segment and one reporting unit. If our assumptions change in the future, we may be required to record impairment charges to reduce our goodwill's carrying value. Changes in the valuation of goodwill could materially impact our operating results and financial position.
We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that such assets' carrying amount may not be recoverable. In evaluating potential impairment of these assets, we specifically consider whether any indicators of impairment are present, including, but not limited to:
• whether there has been a significant adverse change in the business climate that affects the value of an asset;
• whether there has been a significant change in the extent or way an asset is used; and
• whether it is expected that the asset will be sold or disposed of before the end of its originally estimated useful life.
If indicators of impairment are present, we compare the estimated undiscounted cash flows that the specific asset is expected to generate to its carrying value. The key assumptions of the cash flow model involve significant subjectivity. If such assets are impaired, an impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value.
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As of December 31, 2020, we had $79.2 million of goodwill and $15.7 million of intangible assets. Changes in the valuation of long-lived assets could materially impact our operating results and financial position. To date, there have been no impairments of goodwill or intangible assets.
Accounting for income taxes
Significant judgment is required to determine our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in applying accounting principles and complex tax laws. Changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact our financial statements.
We regularly assess the need for a valuation allowance against our deferred tax assets. Future realization of our deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods. We record a valuation allowance to reduce our deferred tax assets to an amount we believe is more likely than not to be realized. Changes in our valuation allowance impact income tax expense in the period of adjustment. Our deferred tax valuation allowance requires significant judgment and uncertainties, including assumptions about future taxable income based on historical and projected information.
We assess our income tax positions and record tax benefits based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements.
As a global company, we use significant judgment to calculate and provide for income taxes in each of the tax jurisdictions in which we operate. In the ordinary course of our business, there are transactions and calculations undertaken whose ultimate tax outcome cannot be certain. Some of these uncertainties arise due to transfer pricing for transactions with our subsidiaries, the determination of tax nexus, and tax credit estimates. In addition, the calculation of acquired tax attributes and the associated limitations are complex. We estimate our exposure to unfavorable outcomes related to these uncertainties and estimate the probability of such outcomes.
Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome will not be different from what is reflected in our historical income tax provisions, returns, and accruals. Such differences, or changes in estimates relating to potential differences, could have a material impact on our income tax provision and operating results in the period in which such a determination is made.
See "Note 16. Income Taxes" in Item 8 of this Annual Report for additional information.
Convertible senior notes and capped call transactions
In February 2020, we issued Convertible Senior Notes (the "Notes") with an aggregate principal amount of $600 million, due March 1, 2025, in a private placement. We also entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions cover 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of our common stock and are generally expected to reduce potential dilution of our common stock upon any conversion of the Notes.
In accounting for the convertible senior notes and Capped Call Transactions:
• The initial carrying amount of the liability component was calculated by measuring a similar debt instrument’s fair value that does not have an associated conversion feature. The excess of the Notes’ principal amount over the initial carrying amount of the liability component, the debt discount, is amortized as interest expense over the Notes’ contractual term. The fair value was determined utilizing a discounted cash flow model and required us to make various estimates including, implied credit spread, expected volatility, and the risk-free rate for notes with a similar term.
• The equity component was recorded as an increase to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Convertible Senior Notes.
• The Capped Call Transactions are accounted for as derivative instruments. The Capped Call Transactions do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value of the Capped Call Transactions, calculated in accordance with the governing documents, may not represent a fair value measurement.
The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable. Management applies judgment in its determination of expected volatility. We consider both historical and implied volatility levels of the underlying equity security and, to a lesser extent, historical peer group volatility levels.
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Applying the accounting framework for the Convertible Senior Notes and the Capped Call Transactions requires the exercise of judgment and the determination of the fair value of the liability component of the convertible notes and the fair value of the Capped Call Transactions requires the Company to make significant estimates and assumptions. As of December 31, 2020, a hypothetical 10% increase in our stock price would have increased the fair value of the capped call to $96.5 million, while a hypothetical 10% decrease in our stock price would have decreased the fair value of the capped call to $70.3 million.
See "Note 2. Significant Accounting Policies", "Note 10. Debt", and "Note 12. Fair Value Measurements" in Item 8 of this Annual Report for additional information.
New accounting pronouncements
See "Note 2. Significant Accounting Policies" in Item 8 of this Annual Report for additional information.