Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A, “Risk Factors” and elsewhere in this report.
The results of our outdoor products and accessories business, which was previously reported as a separate business segment, are being presented as discontinued operations in the consolidated statements of income/(loss) for all periods presented, See Note 3 – Discontinued Operations to our consolidated financial statements for additional information regarding these discontinued operations. Unless otherwise indicated, any reference to income statement items in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to results from continuing operations.
2021 Highlights
Our operating results for fiscal 2021 included the following:
•
Net sales of $1.1 billion represented an increase of $529.6 million, or 100.0%, over our fiscal 2020 net sales. The 100.0% increase in net sales was primarily driven by our ability to respond to consistently increased consumer demand over the past year with a 61.6% increase in firearm units produced combined with the cancellation of substantially all promotional activities, which resulted in an increase in average selling prices for nearly all product offerings.
•
Gross profit increased 171.0% over the prior fiscal year, primarily because of lower promotional spending, favorable manufacturing fixed cost absorption, favorable product mix, and price increases. This increase was partially offset by increased volume-related spending and unfavorable inventory valuation adjustments.
•
Increased net sales and gross margin were driven by heightened consumer demand, which we believe was caused by continued concerns regarding the COVID-19 pandemic, events that raised fears about personal protection, and uncertainty regarding the possibility of increased firearm regulation.
•
Net income was $243.6 million, or $4.40 per diluted share, compared with net income of $27.7 million, or $0.50 per diluted share for the prior fiscal year, primarily as a result of increased net sales across all of our product lines.
•
As noted above, and in Note 3 – Discontinued Operations to our consolidated financial statements, the spin-off of our wholly owned subsidiary AOUT, from our company was completed on August 24, 2020.
Key Performance Indicators
We evaluate the performance of our business based upon operating profit, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and expense. We also track our return on invested capital, and we use adjusted EBITDAS (earnings before interest, taxes, depreciation, amortization, and stock-based compensation expense, excluding certain non-operational items), which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends. We evaluate the performance of our products using such measurements as gross margin per unit produced, units produced per day, revenue by trade channel, and incoming orders per day.
External Factors that Impact the Firearm Industry
The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for all companies within the industry. These factors include, among others, fears surrounding crime and terrorism; tragic news events; potential restrictions on the sale or makeup of firearms; actual and potential legislative, judicial, and regulatory actions; economic changes; and changes in the social and political environment, including presidential elections. See Item IA, Risk Factors, for further discussion of external factors that impact the firearm industry. Although these external factors have created demand surges and volatility in the
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firearm market, and often mak e it difficult to predict demand, we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms. From 2010 through 2019, t his increased consumer interest helped the firearm industry generate a ten-year compound annual growth rate in units of approximately 2.8% according to the ATF. We believe that this expanding base of consumers combined with our strong brand re putation and attractive price points are important factors in our goal to continue increasing our market share. Based on data from calendar 20 20 , we estimate that we have a 19.0 % share of the U.S. consumer market for firearms .
Results of Operations
Net Sales and Gross Profit
The following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):
2021
2020
$ Change
% Change
2019
Handguns
$
755,735
$
390,711
$
365,024
93.4
%
$
336,901
Long Guns
253,340
101,540
151,800
149.5
%
107,717
Other Products & Services
50,120
37,367
12,753
34.1
%
36,718
Total Revenue
$
1,059,195
$
529,618
$
529,577
100.0
%
$
481,336
Cost of sales
610,212
363,929
246,283
67.7
%
335,052
Gross profit
$
448,983
$
165,689
$
283,294
171.0
%
$
146,284
% of net sales (gross margin)
42.4
%
31.3
%
30.4
%
The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2021, 2020, and 2019 (units in thousands):
Total Units Shipped
2021
2020
# Change
% Change
2019
Handguns
2,079
1,253
826
65.9%
1,162
Long Guns
524
295
229
77.6%
327
Sporting Goods Channel Units Shipped
2021
2020
# Change
% Change
2019
Handguns
1,953
1,170
783
66.9%
1,067
Long Guns
508
281
227
80.8%
309
Professional Channel Units Shipped
2021
2020
# Change
% Change
2019
Handguns
126
83
43
51.8%
95
Long Guns
16
14
2
14.3%
18
Fiscal 2021 Net Sales and Gross Profit Compared with Fiscal 2020
Net sales for our handguns increased $365.0 million, or 93.4%, over fiscal 2020 as a result of increased demand for all major product lines, likely as a result of pandemic-related restrictions, fear for personal safety, and concerns over increased firearm regulation resulting from a change in the Presidential administration. Unit shipments of our handguns into the sporting goods consumer channel increased 66.9% over fiscal 2020 as a result of increased demand, which correlates to the 48.9% increase in adjusted background checks for handguns reported to NICS. We believe our outperformance of adjusted NICS was a result of our ability to increase capacity to meet consumer demand, and a consumer preference for our products at the retail level.
Net sales for our long guns increased $151.8 million, or 149.5%, over fiscal 2020 as a result of increased consumer demand for our M&P modern sporting rifles, we believe driven by fear for public safety, concerns over increased firearms regulation resulting from a change in the Presidential administration, and an increased participation in outdoor activities because of COVID-19, partially offset by a bulk sale to clear discontinued products from the channel in the prior year. Unit shipments into the sporting goods channel increased 80.8% over fiscal 2020 compared with a 40.6% increase in reported NICS checks over the prior comparable period. We believe
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that our percentage increase in long gun sales significantly exceeded the increase in NICS because our flexible manufacturing capabilities allowed us to increase production capacity significantly during this period , combined with a consumer preference for our products at the retail level.
Other products and services net sales increased $12.8 million, or 34.1%, over fiscal 2020, primarily because of increased sales of component parts, handcuffs, and business-to-business services.
New products, defined as any new SKU not shipped in the prior year, represented 17.3% of net sales for the 12 months ended April 30, 2021 and included several new M&P branded polymer pistols, many new product line extensions, and promotional products bundle kits for our M&P and Thompson/Center Arms branded products.
Gross margin for fiscal 2021 increased by 171.0% over the prior fiscal year, primarily because of lower promotional spending, favorable manufacturing fixed cost absorption, favorable product mix, and price increases. This increase was partially offset by increased manufacturing spending, unfavorable inventory valuation adjustments.
Our inventory levels decreased $25.3 million during fiscal 2021, as a result of the increase in consumer demand. The past year has seen unprecedented demand, which has resulted in internal, distributor, and retail inventories being at historically low levels.
A discussion of our results of net sales and gross profit for the year ended April 30, 2020 compared to the year ended April 30, 2019 is included in 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 year ended April 30, 2020, filed with the SEC on June 19, 2020.
Operating Expenses
The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):
2021
2020
$ Change
% Change
2019
Research and development
$
7,480
$
7,364
$
116
1.6
%
$
8,008
Selling, marketing, and distribution
42,603
41,987
616
1.5
%
27,693
General and administrative
79,268
66,033
13,235
20.0
%
67,066
Total operating expenses
$
129,351
$
115,384
$
13,967
12.1
%
$
102,767
% of net sales
12.2
%
21.8
%
21.4
%
Fiscal 2021 Operating Expenses Compared with Fiscal 2020
Operating expenses increased $14.0 million over the prior fiscal year. Selling, marketing, and distribution expenses increased $616,000, primarily because of increased freight-related expenses and expenses related to temporary labor, as a result of increased shipments, additional expenses for a consumer firearm safety program, increased co-op advertising expenses for strategic customers, and compensation-related expenses. These increased expenses were partially offset by lower travel and entertainment expenses as a result of COVID-19 and decreased spending on targeted customer promotions. General and administrative expenses increased $13.2 million, primarily because of $3.2 million of increased expenses related to the spin-off, $12.6 million of increased profit-sharing expense, and $1.0 million in donations to the National Shooting Sports Foundation. These increased expenses were partially offset by lower travel and entertainment expensed due to COVID-19, and decreased compensation-related expenses.
Fiscal 2020 Operating Expenses Compared with Fiscal 2019
Operating expenses increased by $12.6 million over fiscal 2019. Research and development expenses decreased $644,000 as a result of decreased compensation-related expenses. Selling and marketing expenses increased primarily as a result of $5.3 million of increased compensation-related expenses, $4.4 million of increased freight and shipping expense, and $2.5 million in depreciation expense related to our distribution center. These increased expenses were partially offset by a decrease in spending on promotional events because of COVID-19.
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General and administrative expenses increased $ 1.0 million because of increased depreciation expenses and other expenses related to the spin-off of our outdoor products and accessories business. These increases were partially offset by decreased compensation-related expenses in connection with the separation of our former President and Chief Executive Officer.
Operating Income from Continuing Operations
The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):
2021
2020
$ Change
% Change
2019
Operating income from continuing operations
$
319,632
$
50,305
$
269,327
535.4
%
$
43,517
% of net sales (operating margin)
30.2
%
9.5
%
9.0
%
Fiscal 2021 Operating Income from Continuing Operations Compared with Fiscal 2020
Operating income from continuing operations for fiscal 2021 increased $269.3 million, or 535.4%, over the prior fiscal year, primarily because of increased sales and the resulting improvements in gross margins. Operating income from continuing operations was also favorably impacted by lower promotional product spending, favorable manufacturing fixed-cost absorption, lower travel and entertainment expenses because of COVID-19, and decreased advertising costs. These favorable impacts were partially offset by increased volume-related spending, increased freight-related expenses, and increased profit-sharing expense.
Fiscal 2020 Operating Income from Continuing Operations Compared with Fiscal 2019
Operating income from continuing operations for fiscal 2020 was $50.3 million, an increase of $6.8 million, or 15.6% over fiscal 2019, primarily because of favorable manufacturing fixed cost absorption, favorable inventory valuation adjustments, and lower manufacturing spending, as well as decreased compensation-related expenses in connection with the separation of our former President and Chief Executive Officer. These increases in operating income from continuing operations were partially offset by increased promotional product discounts and targeted customer promotions, increased depreciation and compensation-related expenses related to the new distribution center, increased expenses related to the spin-off of our outdoor products and accessories business, and increased expenses related to the COVID-19 pandemic.
Other Income
The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):
2021
2020
$ Change
% Change
2019
Other income
$
2,252
$
495
$
1,757
354.9
%
$
477
Other income for fiscal 2021increased $1.8 million, or 354.9%, over the prior fiscal year, primarily as a result of the sublease of the distribution center to AOUT, whereby AOUT subleases from us 59.0% of our distribution center under the same terms as the master lease.
Interest (Expense)
The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):
2021
2020
$ Change
% Change
2019
Interest expense
$
(3,919
)
$
(11,625
)
$
(7,706
)
-66.3
%
$
(9,790
)
Interest expense decreased by $7.7 million from the prior fiscal year as a result of lower overall outstanding debt during fiscal 2021 resulting from increased cash generation that enabled us to repay all amounts outstanding on our revolving line of credit.
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Interest expense increased by $1.8 million over fiscal 20 19 as a result of interest recorded related to our capital lease for our new distribution center and additional borrowings outstanding on our revolving line of credit during the fiscal year.
Income Tax Expense
The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):
2021
2020
$ Change
% Change
2019
Income tax expense
$
74,394
$
11,522
$
62,872
545.7
%
$
9,284
% of income from operations (effective tax rate)
23.4
%
29.4
%
-6.0
%
27.1
%
We recorded income tax expense of $74.4 million for fiscal 2021, $62.9 million higher than the prior fiscal year, primarily because of increased profitability. The effective tax rates were 23.4% and 29.4% for fiscal 2021 and 2020, respectively. The effective tax rate decreased by 6.0% as a result of non-deductible expenses impacting taxable income to a lesser extent as taxable income rises. In addition, prior year income tax expense included higher non-deductible spin-related transaction costs.
We recorded income tax expense of $11.5 million for fiscal 2020, $2.2 million higher than 2019, primarily because of increased profitability. The effective tax rates were 29.4% and 27.1% for fiscal 2020 and 2019, respectively. The increase in rate was due to higher non-deductible spin-related costs in fiscal 2020.
Income from Continuing Operations
The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands, except per share data):
2021
2020
$ Change
% Change
2019
Income from continuing operations
$
243,571
$
27,653
$
215,918
780.8
%
$
24,920
Net income per share
Basic - continuing
$
4.46
$
0.50
$
3.96
792.0
%
$
0.46
Diluted - continuing
$
4.40
$
0.50
$
3.90
780.0
%
$
0.45
Fiscal 2021 Income from Continuing Operations Compared with Fiscal 2020
Net income increased $215.9 million, or $3.90 per diluted share, over the prior fiscal year for reasons outlined above.
Fiscal 2020 Income from Continuing Operations Compared with Fiscal 2019
Net income increased $2.7 million, or $0.05 per diluted share, over the prior fiscal year for reasons outlined above.
Liquidity and Capital Resources
Our principal cash requirements are to (1) finance the growth of our operations, including working capital and capital expenditures, and (2) return capital to our stockholders. Capital expenditures for new product development, additional manufacturing capacity, and repair and replacement of equipment represent important cash needs.
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The following table sets forth certain cash flow information for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):
2021
2020
$ Change
% Change
2019
Operating activities
$
317,260
$
80,835
$
236,425
292.5
%
$
51,098
Investing activities
(22,261
)
(12,084
)
(10,177
)
84.2
%
(29,696
)
Financing activities
(303,758
)
3,380
(307,138
)
-9086.9
%
(30,468
)
Total cash flow
$
(8,759
)
$
72,131
$
(80,890
)
-112.1
%
$
(9,066
)
Operating Activities
Operating activities from continuing operations represent the principal source of our cash flow.
Cash provided by operating activities from continuing operations was $317.3 million in fiscal 2021, or $236.4 million higher than the prior fiscal year. Cash generated by operating activities from continuing operations for fiscal 2021 was favorably impacted by net income of $274.3 million before depreciation and amortization, an incremental $26.2 million decrease in inventory from the prior year due to increased shipments to meet consumer demand, an incremental $21.5 million increase in accounts payable due to increased manufacturing purchases and timing of payments, an incremental $12.6 million increase in profit sharing, and a $10.8 million increase in management incentive bonus accruals due to higher income from continuing operations. These favorable impacts were partially offset by an incremental $46.7 million of decreased accrued expenses, primarily due to lower promotional product discount accruals and the payment of deferred federal excise tax liabilities allowed by the Tax and Trade Bureau as a result of the COVID-19 pandemic, and a $5.6 million incremental increase in accounts receivable due to timing of shipments.
We anticipate that inventory levels will remain relatively flat in the first quarter of fiscal 2022 as we continue to meet current consumer demand.
Cash provided by operating activities from continuing operations was $80.8 million in fiscal 2020, or $29.7 million higher than fiscal 2019. Cash generated by operating activities from continuing operations for fiscal 2020 was favorably impacted by net income of $59.6 million before depreciation and amortization, a $28.9 million incremental decrease in accounts receivable due to the timing of shipments and customer payments, and a $28.3 million incremental increase in accrued expenses, primarily due to an increase in promotional product discount accruals and the postponement of federal excise tax payments as a result of the COVID-19 pandemic. These favorable impacts were partially offset by an incremental $15.9 million of decreased payroll and incentive accruals due to the payment of higher management incentive bonuses during the year and the separation of our former President and Chief Executive Officer and a $8.6 million incremental increase in inventory.
Investing Activities
Cash used in investing activities in fiscal 2021 was $22.3 million, or $10.2 million higher than fiscal 2020. We recorded capital expenditures of $22.1 million for fiscal 2021, $9.6 million higher than fiscal 2020 due to expenditures required to increase manufacturing capacity.
Cash used in investing activities in fiscal 2020 was $12.1 million, or $17.6 million lower than in fiscal 2019. We recorded capital expenditures of $12.4 million for fiscal 2020, $18.5 million lower than fiscal 2019 due to increased spending in the prior year related to our distribution center.
Financing Activities
Cash used in financing activities was $303.8 million in fiscal 2021 compared with cash provided by financing activities of $3.4 million in fiscal 2020. Cash used in financing activities during the fiscal year was primarily a result of a net repayment of $160.0 million of borrowings on our credit facility, funding a distribution of $25.0 million to our subsidiary housing our discontinued operations, and $110.0 million of share repurchases.
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Cash provided by financing activities was $3.4 million in fiscal 2020, compared with a cash usage of $30.5 million in fiscal 2019. Cash generated from operations and not earmarked for investments in our business would historically been used to reduce the balance of our revolving credit facility but was not in fiscal 2020 solely as a precaution related to the COVID-19 pandemic.
Finance Lease – We are party to a $46.2 million lease for our distribution center in Columbia, Missouri, which has an effective rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding. During the fiscal year, we paid $949,000 in principal payments relating to this finance lease. In connection with the completion of the Separation on August 24, 2020, we entered into an agreement with AOUT to sublease them 59.0% of this facility under the same terms as the master lease. We have recorded $1.7 million of income related to this sublease agreement, which is recorded in other income/(expense) in our condensed consolidated statement of income/(loss) and comprehensive income/(loss).
Credit Facilities - As of April 30, 2021, we had no outstanding indebtedness. However, we maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time. T he revolving line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2021. The credit agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the revolving line). Each swingline loan bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. In response to a Springing Lien Triggering Event (as defined in the credit agreement), we would be required to enter into certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents as legal, valid, and enforceable first priority lien on the collateral described therein. Subject to the satisfaction of certain terms and conditions described in the credit agreement, we have an option to increase the revolving line by an aggregate amount not exceeding $50.0 million. The revolving line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any permitted notes under the credit agreement.
The credit agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage. We were in compliance with all debt covenants as of April 30, 2021.
Share Repurchase Programs - On December 15, 2020, our board of directors authorized the repurchase of $50.0 million of our common stock, subject to certain conditions, in the open market or privately negotiated transactions until December 14, 2021. During fiscal 2021, we repurchased 2,737,489 shares of our common stock under this authorization. On March 2, 2021, our board of directors authorized the repurchase of an additional $100.0 million of our common stock, subject to certain conditions, in the open market or privately negotiated transactions. During fiscal 2021, we repurchased 3,380,447 shares of our common stock for $60.0 million. Subsequent to fiscal 2021, we completed the second stock repurchase program by purchasing 1,967,420 shares of our common stock for $40.0 million. We did not repurchase any shares of our common stock during fiscal 2020 or 2019.
At April 30, 2021, we had $113.0 million in cash and cash equivalents on hand.
Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for the next 12 months.
Our future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the costs to ensure access to adequate manufacturing capacity, and costs to enhance the equipment and software at our distribution center.
Inflation
We do not believe that inflation had a material impact on us during fiscal 2021, 2020, or 2019.
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Critical Accounting Policies
Revenue Recognition
We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, Revenue from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018. Generally, all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance.
In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs that entitle customers to receive free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility. In such instances, we allocate the revenue of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the products included in the promotional program, including the free goods. We recognize revenue proportionally as each performance obligation is satisfied, based on the relative transaction price of each product. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.
Our product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 90 days of product shipment with a discount available in certain cases for early payment. For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to our hunting dating programs, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.
Valuation of Long-lived Tangible and Intangible Assets
We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset’s new cost basis. We determine fair value primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.
Inventories
We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.
Warranty
We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products. We either provide a limited one-year, or a limited-lifetime warranty to the original purchaser of most of our other products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We provide for estimated warranty obligations in the period in which we recognize the related revenue. We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our
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operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.
Recent Accounting Pronouncements
The nature and impact of recent accounting pronouncements is discussed in Note 3 — Significant Accounting Policies to our consolidated financial statements, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support or that engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected in our financial statements.