IMMERSION CORP 10-Q

Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements within the meaning of Section 27 A of the Securities Act of 1933 , as amended (the “Securities Act”), and Section 21 E of the Securities Exchange Act of 1934 , as amended (the “Exchange Act”). The forward-looking statements involve risks and uncertainties. Forward-looking statements are frequently identified by words such as “anticipates”, “believes”, “expects”, “intends”, “may”, “can”, “will”, “places”, “estimates”, and other similar expressions. However, these words are not the only way we identify forward-looking statements. Examples of forward-looking statements include among other things, any expectations, projections, or other characterizations of future events, or circumstances, and include statements regarding: the continued impact of COVID- 19 on our business, including as to revenue, and potential cost reduction measures, and the continued impact of COVID- 19 on our customers, suppliers, and on the economy in general; our strategy and our ability to execute our business plan; our competition and the market in which we operate; our customers and suppliers; our revenue and trends related thereto, and the recognition and components thereof; our costs and expenses, including capital expenditures; our investment of surplus funds and sales of marketable debt securities; seasonality and demand; our investment in research and technology development; changes to general and administrative expenses; our foreign operations and the reinvestment of our earnings related thereto; our investment in and protection of our IP; our employees; capital expenditures and the sufficiency of our capital resources; unrecognized tax benefit and tax liabilities; the impact of changes in interest rates and foreign exchange rates, as well as our plans with respect to foreign currency hedging in general; changes in laws and regulations, including with respect to taxes; our plans and estimates related to and the impact of current and future litigation and arbitration; our leases, sublease and the timing and income related thereto; and our dividend, stock repurchase and equity distribution programs. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results could differ materially from those projected in the forward-looking statements, therefore we caution you not to place undue reliance on these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the risk factors contained under Part I, Item 1 A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 22, 2023 and below under Part II, Item 1 A, “Risk Factors.” Any forward-looking statements made by us in this report speak only as of the date of this report, and we do not intend to update these forward-looking statements after the filing of this report, unless required to do so by applicable law or regulation. You are urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the SEC that attempt to advise you of the risks and factors that may affect our business. OVERVIEW We are a premier licensing company focused on the invention, acceleration, and scaling, through licensing, of innovative haptic technologies that allow people to use their sense of touch to engage with products and experience the digital world around them. We are one of the leading experts in haptics, and our focus on innovation allows us to deliver world-class intellectual property (“IP”) and technology that enables the creation of products that delight end users. Our technologies are designed to facilitate the creation of high-quality haptic experiences, enable their widespread distribution, and ensure that their playback is optimized. Our primary business is currently in the mobility, gaming, and automotive markets, but we believe our technology is broadly applicable and see opportunities in evolving new markets, including virtual and augmented reality, and wearables, as well as residential, commercial, and industrial Internet of Things. In recent years, we have seen a trend towards broad market adoption of haptic technology. As other companies follow our leadership in recognizing how important tactile feedback can be in people’s digital lives, we expect the opportunity to license our IP and technologies will continue to expand. 26 Table of Contents We have adopted a business model under which we offer licenses to our patented technology to our customers to integrate our patented technology into our customers’ products or enhance the functionality of our patented technology. Our licenses enable our customers to deploy haptically-enabled devices, content and other offerings, which they typically sell under their own brand names. We and our wholly-owned subsidiaries hold more than 1,000 issu ed or pending patents worldwide as of September 30, 2023. Our patents cover a wide range of digital technologies and ways in which touch-related technology can be incorporated into and between hardware products and components, systems software, application software, and digital content. We believe that our IP is relevant to many of the most important and cutting-edge ways in which haptic technology is and can be deployed, including in connection with mobile interfaces and user interactions, in association with pressure and other sensing technologies, as part of video and interactive content offerings, as related to virtual and augmented reality experiences, and in connection with advanced actuation technologies and techniques. Our portfolio includes numerous patents and patent applications that we believe may become essential to emerging standards in development by Standards Development Organizations (“SDOs”) including media standards in development by ISO/IEC Moving Picture Expert Group (MPEG) and software and system standards in development at IEEE-SA. We were incorporated in 1993 in California and reincorporated in Delaware in 1999 . Results of Operations Overview Total revenues for the three months ended September 30, 2023 was $ 9.5 million, a decrease of $ 4.5 million, or 32 %, compared to the same period in 2022 . Total revenues for the nine months ended September 30, 2023 was $ 23.5 million, a decrease of $ 5.8 million, or 20 %, compared to the same period in 2022 . Total operating expenses were $ 3.0 million in each of the three months ended September 30, 2023 and 2022 . Total operating expenses were $ 10.6 million in the nine months ended September 30, 2023 flat compared to $ 10.7 million total operating expense in the same period in 2022 . Net income was $ 2.7 million in the three months ended September 30, 2023 compared to a net income of $ 7.7 million in the same period in 2022 . Net income was $ 18.0 million and $ 11.0 million i n the nine months ended September 30, 2023 and 2022 , respectively. The following table sets forth our Condensed Consolidated Statements of Income and Comprehensive Income data as a percentage of total revenues: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Fixed fee license revenue 13 % 55 % 15 % 36 % Per-unit royalty revenue 87 45 84 63 Total royalty and license revenue 100 100 99 99 Development, services, and other — — 1 1 Total revenues 100 100 100 100 Operating expenses: Sales and marketing 4 2 4 3 Research and development — 2 1 4 General and administrative 27 18 40 29 Total operating expenses 31 22 45 36 Operating income 69 78 55 64 Interest and other income (loss), net ( 27 ) ( 17 ) 46 ( 22 ) Income before provision for income taxes 42 61 101 42 Provision for income taxes ( 14 ) ( 6 ) ( 24 ) ( 4 ) Net income 28 % 55 % 77 % 38 % 27 Table of Contents Revenues Our revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements. Royalty and license revenue is composed of per unit royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our IP and software. Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 A revenue summary for the three months ended September 30, 2023 and 2022 is as follows (in thousands, except for percentages): Three Months Ended September 30, 2023 2022 $ Change % Change Revenues: Fixed fee license revenue $ 1,191 $ 7,662 $ ( 6,471 ) ( 84 ) % Per-unit royalty revenue 8,283 6,269 2,014 32 % Total royalty and license revenue 9,474 13,931 ( 4,457 ) ( 32 )% Development, services, and other revenue 8 75 ( 67 ) ( 89 )% Total revenues $ 9,482 $ 14,006 $ ( 4,905 ) ( 35 )% Royalty and license revenue Fixed fee license revenue decreased by $ 6.5 million, or 84 %, in the third quarter of 2023 compared to the same period in 2022 primarily due to a $ 6.5 million decrease in mobility license revenue. Per-unit royalty revenue increased by $ 2.0 million, or 32 %, in the third quarter of 2023 compared to the same period in 2022 , primarily due to an $ 1.9 million in crease in royalties from automotive licensees and a $ 0.8 million increase in royalties from gaming licensees partially offset by a $ 0.5 million decrease in royalties from mobility licensees. We expect royalty and license revenue to continue to be a major component of our future revenue as our technology is included in products and we succeed in our efforts to monetize our IP. Our fixed fee license revenue could fluctuate depending upon the timing of execution of new fixed license fee arrangements. We also anticipate that our royalty revenue will fluctuate relative to our customers’ unit shipments. Geographically, revenues generated in Asia, North America and Europe for the three months ended September 30, 2023 represented 68 %, 8 %, and 24 %, respectively, of our total revenue as compared to 43 %, 54 %, and 3 %, respectively, for the three months ended September 30, 2022 . 28 Table of Contents Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 A revenue summary for the nine months ended September 30, 2023 and 2022 are as follows (in thousands, except for percentages): Nine Months Ended September 30 , 2023 2022 $ Change % Change Revenues: Fixed fee license revenue $ 3,594 $ 10,653 $ ( 7,059 ) ( 66 ) % Per-unit royalty revenue 19,807 18,426 1,381 7 % Total royalty and license revenue 23,401 29,079 ( 5,678 ) ( 20 ) % Development, services, and other revenue 138 218 ( 80 ) ( 37 ) % Total revenues $ 23,539 $ 29,297 $ ( 5,758 ) ( 20 ) % Royalty and license revenue Fixed fee license revenue decreased $ 7.1 million, or 66 %, in the first nine months of 2023 compared to the same period in 2022 primarily attributable to a $ 6.4 million decrease in mobility license revenue and a $ 0.5 million decrease in automotive license revenue. Per-unit royalty revenue increased by $ 1.4 million, or 7 %, in the first nine months of 2023 compared to the same period in 2022 , primarily caused by a $ 2.0 million increase in royalties from gaming licensees and a $ 2.0 million increase in royalties from automotive licensees partially offset by a $ 2.3 million decrease in royalties from mobility licensees and $ 0.4 million decrease from other licensees. Geographically, revenues generated in Asia, North America and Europe for the nine months ended September 30, 2023 represented 77 %, 12 %, and 11 %, respectively, of our total revenue as compared to 61 %, 33 %, and 6 %, respectively, for the nine months ended September 30, 2022 . Operating Expenses A summary of operating expenses for the three and nine months ended September 30, 2023 , and 2022 is as follows (in thousands, except for percentages): Three Months Ended September 30, 2023 2022 $ Change % Change Sales and marketing $ 367 282 $ 85 30 % Research and development 30 254 ( 224 ) ( 88 )% General and administrative 2,566 2,540 26 1 % Nine Months Ended September 30, 2023 2022 $ Change % Change Sales and marketing $ 861 $ 990 $ ( 129 ) ( 13 )% Research and development 259 1,118 ( 859 ) ( 77 )% General and administrative 9,528 8,550 978 11 % Sales and Marketing - Our sales and marketing expenses primarily consisted of employee compensation and benefits, including stock-based compensation; marketing costs and allocated facilities costs. 29 Table of Contents Sales and marketing expenses increased $ 0.1 million, or 30 %, in the three months ended September 30, 2023 compared to the same period in 2022 primarily attributable to a $ 0.1 million increase in compensation, benefits and other personnel-related costs due to an increase in stock-based compensation. Sales and marketing expenses decreased $ 0.1 million, or 13 %, in the nine months ended September 30, 2023 compared to the same period in 2022 primarily attributable to a decrease in compensation, benefits and other personnel-related costs due to lower headcount partially offset by an increase in stock-based compensation expense. Research and Development - Our research and development expenses primarily consisted of employee compensation and benefits, including stock-based compensation; office expense and allocated facilities costs. Research and development expenses decreased $ 0.2 million, or 88 %, and $ 0.9 million, or 77 % , in the three and nine months ended September 30, 2023 , respectively, compared to the same periods in 2022 . This decrease was primarily attributable to decreases in compensation, benefits and other personnel-related costs due to lower headcount. General and Administrative - Our general and administrative expenses primarily consisted of employee compensation and benefits including stock-based compensation; legal other professional fees; external legal costs for patents; office expense; travel; and allocated facilities costs. General and administrative expense was flat in the three months ended September 30, 2023 compared to the same period in 2022 . General and administrative expenses increased $ 1.0 million, or 11 %, in the first nine months of 2023 as compared to the same period in 2022 primarily due to a $ 0.7 million increase in compensation, benefits and other personnel related costs and a $ 0.3 million increase in legal costs. The increase in compensation, benefits and other personnel related costs in the nine months ended September 30, 2023 compared to the same period in 2022 were largely driven by increases in variable compensation and severance costs. The increase in legal expenses in the three and nine months ended September 30, 2023 compared to the same period in 2022 was largely attributable to an increase in legal consulting costs. We are engaged in, and may be required to engage in further, litigation to protect our IP, which may cause our general and administrative expenses to substantially increase reflecting such litigation costs. Interest and Other Income (Loss) Interest and Other Income (loss) - Interest and other income consists primarily of interest and dividend income from cash and cash equivalents and marketable debt and equity securities, short-term investments realized and unrealized gains (losses) on our marketable equity securities and derivative instruments and realized gains (losses) on our marketable debt securities. Three Months Ended September 30, 2023 2022 $ Change % Change Interest and other income (loss), net $ ( 2,382 ) $ ( 2,185 ) $ ( 197 ) 9 % Other income (expense), net ( 172 ) ( 163 ) ( 9 ) 6 % Interest and other income (loss), net $ ( 2,554 ) $ ( 2,348 ) $ ( 206 ) 9 % Nine Months Ended September 30, 2023 2022 $ Change % Change Interest and other income (loss), net $ 10,876 $ ( 5,865 ) $ 16,741 ( 285 ) % Other income (expense), net ( 145 ) ( 548 ) 403 ( 74 )% Interest and other income (loss), net $ 10,731 $ ( 6,413 ) $ 17,144 ( 267 ) % Interest and other income (loss) decreased $ 0.2 million during the three months ended September 30, 2023 compared to the same period in 2022 , primarily driven by a $ 1.1 million decrease in net gains from investments in marketable equity securities and derivative instruments partially offset by a $ 0.9 million increase in interest income. Interest and other income (loss) increase $ 16.7 million during the nine months ended September 30, 2023 , compared to the same period in 2022 , primarily driven by a $ 14.6 million increase in net gains from investments in marketable equity securities and derivative instruments and a 2.2 million increase in interest income. 30 Table of Contents Other income (expense), net increased $ 0.4 million during the nine months ended September 30, 2023 compared to the same period in 2022 , primarily driven by a $ 0.4 million decrease in net foreign currency translation losses. Income Taxes A summary of provision for income taxes and effective tax rates for the three and nine months ended September 30, 2023 and 2022 is as follows (in thousands): Three Months Ended September 30, 2023 2022 $ Change % Change Income before provision for income taxes $ 3,965 $ 8,582 Provision for income taxes ( 1,285 ) ( 877 ) ( 408 ) 47 % Effective tax rate 32.4 % 10.2 % Nine Months Ended September 30, 2023 2022 $ Change % Change Income before provision for income taxes $ 23,622 $ 12,226 Provision for income taxes ( 5,636 ) ( 1,264 ) ( 4,372 ) 346 % Effective tax rate 23.9 % 10.3 % Provision for income taxes for the three and nine months ended September 30, 2023 resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate. Provision for income taxes for the three months ended September 30, 2022 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate. Provision for income taxes for the nine months ended September 30, 2022 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate. We maintain a partial valuation allowance against our U.S. federal deferred tax assets and maintain a full valuation allowance against our U.S. state and Canadian federal deferred tax assets. The change in the estimated effective tax rate was mainly driven by higher U.S. taxable income which was a result of higher U.S. passive income. We provided a partial valuation allowance for certain U.S. federal assets, whose future realization is not more likely than not and continue to maintain full valuation allowance for state and certain foreign deferred tax assets in Canada as a result of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results. In the event that we determine the deferred tax assets are realizable based on an assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. The valuation allowance does not impact our ability to utilize the underlying net operating loss carryforwards. We also maintain liabilities for uncertain tax positions. As of September 30, 2023 , we had unrecognized tax benefits under Accounting Standards Certification (“ASC”) 740 Income Taxes of approximately $ 7.3 million and applicable interest of $ 0.1 million. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $ 3.5 million. We account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months. 31 Table of Contents Liquidity and Capital Resources Our cash equivalents, investments - current and investments - noncurrent consist primarily of money-market funds, investments in marketable equity and debt securities (including mutual funds), investments in U.S. treasury securities and certificates of deposit. All marketable securities are stated at market value. Realized gains and losses on marketable equity securities and marketable debt securities are recorded in Other income (expense), net on the Condensed Consolidated Statements of Income and Comprehensive Income. Unrealized gains and losses on marketable equity securities (including mutual funds) are reported as Other income (expense), net on our Condensed Consolidated Statement of Income and Comprehensive Income. Unrealized gains and losses on marketable debt securities reported as a component of Accumulated other comprehensive income on our Condensed Consolidated Balance Sheets . Certificates of deposit are report as Investment - current or Investment -noncurrent based on their remaining maturity days. Interest income from certificates of deposit are reported as Interest and other income (loss), net on the Condensed Consolidated Statement of Income and Comprehensive Income. Cash, cash equivalents and investments-current - As of September 30, 2023 , our cash, cash equivalents, and investments- current totaled $ 150.7 million, an increase of $ 1.0 million from $ 149.7 million on December 31, 2022. A summary of select cash flow information for the nine months ended September 30, 2023 and 2022 are as follows (in thousands): Nine Months Ended September 30, 2023 2022 Net cash provided by operating activities $ 12,779 $ 32,234 Net cash used in investing activities $ ( 19,366 ) $ ( 35,578 ) Net cash used in financing activities $ ( 13,532 ) $ ( 11,379 ) Cash provided by (used in) operating activities - Our operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization; stock-based compensation expense, deferred income taxes and the effect of changes in operating assets and liabilities. Net cash provided by operating activities was $ 12.8 million in the nine months ended September 30, 2023 , a $ 19.5 million decrease compared to the same period in 2022 . This cash decrease was primarily attributable to a $ 14.7 million decrease from changes in non-cash items and $ 11.8 million decrease from changes in net operating assets partially offset by a $ 7.0 million increase in net income. Cash provided by (used in) investing activities - Our investing activities primarily consist of purchases of marketable securities and other investments and proceeds from disposal of marketable securities and other investments; proceeds from issuance of derivative instruments; payments made to settle derivative instruments and purchases of property and equipment. Net cash used in investing activities during the nine months ended September 30, 2023 was $ 19.4 million primarily consisting of $ 167.9 million in cash used to purchase marketable securities and in the settlement of derivative instruments partially offset by $ 148.5 million in proceeds from selling marketable securities and derivatives. Net cash used in investing activities during the first nine months of 2022 was $ 35.6 million primarily consisting of $ 141.9 million in cash used to purchase marketable securities and in the settlement of derivative instrument partially offset by $ 106.4 million in proceeds from selling marketable securities and derivatives. Cash provided by (used in) financing activities — Our financing activities primarily consist of cash proceeds from issuance of common stock, proceeds from stock option exercises and stock purchases under our employee stock purchase plan and cash paid for repurchases of our common stock. 32 Table of Contents Net cash used in financing activities during the nine months September 30, 2023 was $ 13.5 million primarily consisting of $ 6.4 million in dividend payments, $ 6.2 million stock repurchases and $ 1.1 million in shares withheld to cover payroll taxes. Net cash used in financing activities during the nine months ended September 30, 2022 was $ 11.4 million primarily consisting of cash paid for stock repurchases. Total cash, cash equivalents, and short-term investments were $ 150.7 million as of September 30, 2023 of which approximately 19 %, or $ 33.9 million, was held by our foreign subsidiaries and subject to repatriation tax effects. Our intent is to permanently reinvest a majority of our earnings from foreign operations, and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations. On November 14, 2022, our Board of Directors (“Board”) declared a quarterly dividend in the amount of $ 0.03 per share, which was paid on January 30, 2023, to stockholders of record on January 15, 2023. In addition, on December 29, 2022, our Board declared a special dividend in the amount of $ 0.10 per share, which was paid on January 30, 2023, to stockholders of record on January 15, 2023. On February 21, 2023, our Board declared a second quarterly dividend, in the amount of $ 0.03 per share, which was paid on April 28, 2023, to stockholders of record on April 13, 2023. On May 10, 2023, the Board declared a third quarterly dividend in the amount of $ 0.03 per share which was paid on July 28, 2023, to shareholders of record on July 13, 2023. On August 11, 2023 , the Board declared a quarterly dividend in the amount of $ 0.03 per share, which was paid on October 27 , 2023 to shareholders of record on October 16 , 2023 . On November 13 , 2023 , our Board declared a quarterly dividend in the amount of $ 0.045 per share , will be payable, subject to any prior revocation, on January 25, 2024 to shareholders of record on January 14, 2024. Future dividends will be subject to further review and approval by the Board in accordance with applicable law. The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews our capital allocation strategy from time-to-time. We may continue to invest in, protect, and defend our extensive IP portfolio, which can result in the use of cash in the event of litigation. On December 29, 2022, the Board approved a stock repurchase program of up to $ 50.0 million of our common stock for a period of up to twelve months (the “December 2022 Stock Repurchase Program”), which terminated and superseded the stock repurchase program that had been approved by our Board on February 23, 2022. Any stock repurchases may be made through open market and privately negotiated transactions, at such times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10 b 5 - 1 trading plans adopted in accordance with Rule 10 b 5 - 1 of the Exchange Act. Additionally, the Board authorized the use of any derivative or similar instrument to effect stock repurchase transactions, including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the foregoing transactions. The December 2022 Stock Repurchase Program was implemented as a method to return value to our stockholders. The timing, pricing and sizes of any repurchases will depend on a number of factors, including the market price of our common stock and general market and economic conditions. The December 2022 Stock Repurchase Program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time. On August 8, 2023, the Board approved an amendment to extend the expiration date of the December 2022 Stock Repurchase Program that was set to expire on December 29, 2023 to December 29, 2024. We repurchased 898,757 shares of our common stock for $ 6.2 million at an average purchase price of $ 6.8602 per share during the nine months ended September 30, 2023 . As of September 30, 2023 , we had $ 43.8 million available for repurchase under the December 2022 Stock Repurchase Program. We did not have any other significant non-cancellable purchase commitments as of September 30, 2023 . 33 Table of Contents We anticipate that capital expenditures for property and equipment for the remainder of 2023 will be less than $ 1.0 million. As of the date of this Quarterly Report on Form 10-Q, we believe we have sufficient capital resources to meet our working capital needs for the next twelve months and beyond. Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, marketable securities and derivative instruments, income taxes and contingencies. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 22, 2023, for a complete discussion of our critical accounting policies and estimates. The preparation of financial statements and related disclosures in conformity with U.S. GAAP and our discussion and analysis of our financial condition and operating results require the management to make judgments, assumptions and estimates that affect the amounts reported. See Note 1 . Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 herein, which describes the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Recent Accounting Pronouncements See Note 1 . Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements for information regarding the effect of new accounting pronouncements on our financial statements.