ORTHOPEDIATRICS CORP. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto contained elsewhere in this quarterly report, as well as the information under "Note Regarding Forward-Looking Statements."
The description of our business included in this quarterly report is summary in nature and only includes material developments that have occurred since the latest full description. The full description of the history and general development of our business is included in "Item 1. Description of Business" section of the Company's Annual Report on Form 10-K filed with theSEC onMarch 3, 2022 , which section is incorporated herein by reference.
Overview
We are the only global medical device company focused exclusively on providing a comprehensive trauma and deformity correction, scoliosis and sports medicine product offering to the pediatric orthopedic market in order to improve the lives of children with orthopedic conditions. We design, develop and commercialize innovative orthopedic implants and instruments to meet the specialized needs of pediatric surgeons and their patients, who we believe have been largely neglected by the orthopedic industry. We currently serve three of the largest categories in this market. We estimate that the portion of this market that we currently serve represents a$3.3 billion opportunity globally, including over$1.5 billion inthe United States . We sell implants, instruments and braces to our customers for use by pediatric orthopedic surgeons to treat orthopedic conditions in children. We provide our implants in sets that consist of a range of implant sizes and include the instruments necessary to perform the surgical procedure. Inthe United States and a few selected international markets, our customers typically expect us to have full sets of implants and instruments on site at each hospital but do not purchase the implants until they are used in surgery. Accordingly, we must make an up-front investment in inventory of consigned implants and instruments before we can generate revenue from a particular hospital and we maintain substantial levels of inventory at any given time. In the international markets, we also sell to stocking distributors, where we transfer control of our products to the distributor when title passes upon shipment. We currently market 39 surgical systems that serve three of the largest categories within the pediatric orthopedic market: (i) trauma and deformity, (ii) scoliosis and (iii) sports medicine/other. We primarily rely on a broad network of third parties to manufacture the components of our products, which we then inspect and package. We believe our innovative products promote improved surgical accuracy, increase consistency of outcomes and enhance surgeon confidence in achieving high standards of care. In the future, we expect to expand our product offering within these categories, as well as to address additional categories of the pediatric orthopedic market. The majority of our revenue has been generated inthe United States , where we sell our products through a network of 40 independent sales agencies employing more than 205 sales representatives specifically focused on pediatrics. These independent sales agents are trained by us, distribute our products and are compensated through sales-based commissions and performance bonuses. We do not sell our products through or participate in physician-owned distributorships, or PODs. 31 -------------------------------------------------------------------------------- We market and sell our products internationally in over 70 countries, through independent stocking distributors and sales agencies. Our independent distributors manage the billing relationship with each hospital in their respective territories and are responsible for servicing the product needs of their surgeon customers. In 2017, we began to supplement our international stocking distributors with sales agencies using direct sales programs in theUnited Kingdom ,Ireland ,Australia and New Zealand where we sell directly to the hospitals. We began selling direct toCanada inSeptember 2018 ,Belgium andthe Netherlands inJanuary 2019 ,Italy inMarch 2020 andGermany ,Switzerland andAustria inJanuary 2021 . Additionally, inMarch 2019 , we established an operating company inthe Netherlands in order to enhance our operations inEurope . In these markets, we work through sales agencies that are paid a commission, similar to ourU.S. sales model. We expect these arrangements to generate an increase in revenue and gross margin. We believe there are significant opportunities for us to strengthen our position inU.S. and international markets by increasing investments in consigned implant and instrument sets, strengthening our global sales and distribution infrastructure and expanding our product offering. For example, onApril 1, 2022 , the Company acquiredMD Orthopaedics, Inc. , a developer and manufacturer of a portfolio of orthopedic clubfoot products. Also, onJuly 1, 2022 , the Company, along with its newly-formed, indirect wholly-owned subsidiary OrthoPediatrics Canada ULC, purchased all of the issued and outstanding share capital ofPega Medical Inc. , which has developed and sells a portfolio of trauma and deformity correction devices for children, including the Fassier-Duval Telescopic Intramedullary System, a well-recognized, innovative implant designed to treat bony deformities in children with osteogenesis imperfecta without disrupting their normal growth.
Environmental, Social and Governance ("ESG") Activities
OrthoPediatrics was founded on the cause of impacting the lives of children with orthopedic conditions. Since inception we have impacted the lives of over 560,000 children, including MD Ortho. We believe we should continue to expand our social efforts while minimizing our impact to the environment and ensuring corporate governance. In 2021, we created an internal ESG team, which reports directly to our Board'sGovernance and Nominating Committee , to identify ESG topics for disclosure by assessing both the impact on our business and the importance to our stakeholders. We encourage you to review our ESG page under the "About" section of our corporate website for more detailed information regarding our ESG efforts and current initiatives. On our website, among other information, are the following highlights:
•OrthoPediatrics cares about our environmental impact while working in a highly
regulated industry and we are certified according to ISO 13485. Our team in
•The Company and its associates regularly participate in philanthropic causes important to our local communities. We also partner with charitable organizations that provide pediatric orthopedic care around the world. In 2020 we were named as "Corporate Partner of the Year" by theWorld Pediatric Project - with whom we work to provide access to medical care for children in developing countries.
•We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community.
•The Board of Directors understands the value of diversity and will increase the diversity of the Board over the next 12 months.The Governance and Nominating Committee engaged a global recruiting firm to assist in adding two diverse Board candidates. 32 --------------------------------------------------------------------------------
We believe effectively managing our priorities, as well as increasing our
transparency related to ESG programs, will help create long-term value for our
stakeholders. We expect to increase our disclosures and communicate our ESG
efforts in future
Nothing on our website shall be deemed part of or incorporated by reference into this Quarterly Report on Form 10-Q.
Impact of COVID-19 on our Business
As a result of the COVID-19 pandemic ("COVID-19" or the "pandemic"), we have
experienced significant business disruption. For example, in order to meet the
demand for COVID-19-related hospitalizations, various governments, governmental
agencies and hospital administrators required certain hospitals to postpone some
elective procedures. In addition, elective procedures are also being delayed in
some cases as hospitals continue to struggle with adequate staffing levels. As a
majority of our products are utilized in elective surgeries or procedures, the
deferrals of such surgeries and procedures have had, and may continue to have, a
significant negative impact on our business and results of operations. We
encourage the readers of this document to read our risk factors in their
entirety contained in Item 1A "Risk Factors" in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission (the "SEC") on March 3, 2022
and in other reports filed with the SEC that discuss the risks and factors that
may affect our business.
Despite the impact COVID-19 has had on our business, we continue to invest in research and development, invest in our people, and take steps to position ourselves for long-term success.
Health and Safety
From the earliest signs of the outbreak, we have taken proactive, aggressive action to protect the health and safety of our employees, customers, partners and suppliers. We enacted rigorous safety measures in all applicable locations, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present on the warehouse floor, suspending travel, extensively and frequently disinfecting our workspaces and providing masks to those employees who must be physically present. We also installed enhanced HVAC systems across ourWarsaw facility to reduce the spreading of germs. We will continue to utilize some or all of these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business. We may also take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers.
Supply
We have not yet experienced any significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic. To mitigate the risk of any potential supply interruptions from the COVID-19 pandemic, we chose to increase certain inventory levels during the quarter. We may decide to take similar actions going forward. Additionally, restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, may result in higher costs and delays.
Demand
The outbreak has significantly increased economic and demand uncertainty. We
anticipate that the current outbreak or continued spread of COVID-19, and the
actions taken by governmental authorities and other third parties to contain the
virus, may cause a global economic slowdown, and it is possible that it could
cause a global recession. In the event of a recession, demand for our products
would decline and our business would be adversely effected. We have experienced
a reduction in revenue as a result of global delays in elective surgeries.
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--------------------------------------------------------------------------------Liquidity
Although there is uncertainty related to the anticipated impact of COVID-19 on our future results, we believe our business model, our current cash reserves and the recent steps we have taken to strengthen our balance sheet, including expanding our line of credit from$25 million to$50 million and ourJune 2020 andDecember 2019 equity offerings, leave us well-positioned to manage our business through this crisis as it continues to unfold. We believe our existing balances of cash, including our short-term investments, and our currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months. We continue to monitor the evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.
Other Trends and Uncertainties
From time to time we acquire, make investments in or license other technologies, products and business that may enhance our capabilities, complement our current products or expand the breadth of our markets or customer base. As a result of these transactions, we may record certain intangible assets, including goodwill and trademarks, which are subject to annual impairment testing. Impairment is based on our current assessment of the expected future cash flows based on recent results and other specific market factors. Although we have not recorded any impairment charges to date, the most recently prepared assessment indicates our passing rate has narrowed for certain intangible assets. We believe that the expected future cash flows represent management's best estimate; however, if actual results differ materially from these estimates, we could record an impairment charge which could be material to our consolidated financial statements and have an adverse impact on our results of operations.
Emerging Growth Company and Smaller Reporting Company Status
We will qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act (the "JOBS Act") untilDecember 31, 2022 . For as long as a company is deemed to be an emerging growth company, it may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies. We also qualify as a "smaller reporting company," as such term is defined in Rule 12b-2 under the Exchange Act. To the extent that we continue to qualify as a smaller reporting company, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company. The JOBS Act also provides that an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. 34
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Summary of Statements of Operations for the Three and Six Months Ended
The following table sets forth our results of operations for the three and six
months ended
Three Months Ended June 30, Six Months Ended June 30,
Increase Increase
2022 2021 (Decrease) % 2022 2021 (Decrease) %
Net revenue $ 32,928 $ 26,695 $ 6,233 23 % $ 56,345 $ 48,157 $ 8,188 17 %
Cost of revenue 7,947 6,252 1,695 27 % 12,798 11,389 1,409 12 %
Sales and marketing expenses 12,431 10,876 1,555 14 % 22,189 19,825 2,364 12 %
General and administrative
expenses 14,546 11,088 3,458 31 % 27,713 23,129 4,584 20 %
Research and development expenses 1,747 1,325 422 32 % 3,774 2,633 1,141 43 %
Total other expenses (income) (2,971) 1,196 (4,167)
(348) % 60 5,914 (5,854) (99) % Provision for income taxes (benefit) (439) (286) (153) (53) % (756) (598) (158) (26) % Net loss$ (333) $ (3,756) $ (3,423) (91) %$ (9,433) $ (14,135) $ (4,702) (33) % Net Revenue
The following tables set forth our net revenue by geography and product category
for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
Product sales by geographic location: 2022 2021 2022 2021
U.S. $ 24,960 $ 21,737 $ 43,148 $ 38,576
International 7,968 4,958 13,197 9,581
Total $ 32,928 $ 26,695 $ 56,345 $ 48,157
Three Months Ended June 30, Six Months Ended June 30,
Product sales by category: 2022 2021 2022 2021
Trauma and deformity $ 22,568 $ 17,933 $ 39,084 $ 32,485
Scoliosis 9,421 7,657 15,404 13,608
Sports medicine/other 939 1,105 1,857 2,064
Total $ 32,928 $ 26,695 $ 56,345 $ 48,157
Net revenue increased $6.2 million , or 23%, from $26.7 million for the three
months ended June 30, 2021 to $32.9 million for the three months ended June 30,
2022 and increased $8.2 million , or 17%, from $48.2 million for the six months
ended June 30, 2021 . The increase during the three and six months ended June 30,
2022 was driven primarily by non-elective trauma sales. Additionally, in the
second quarter we saw non-organic growth of approximately $2.6 million related
to the acquisition of MD Ortho for the three and six month periods ended
June 30, 2022 .
Trauma and deformity sales, which include the non-organic growth from the MD
Ortho acquisition, increased $4.6 million , or 26%, during the three months ended
June 30, 2022 , and increased $6.6 million ,
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or 20%, during the six months ended June 30, 2022 . In each case, the increase
was primarily driven by strong trauma and deformity growth across numerous
product lines, specifically our Cannulated Screws, PediFoot System, and PNP
Femur System as well as the non-organic growth from MD Ortho. Scoliosis sales
increased $1.8 million , or 23%, during the three months ended June 30, 2022 , and
increased $1.8 million , or 13%, during the six months ended June 30, 2022 . In
each case, the growth was primarily driven by increased sales of our RESPONSE
4.5/5.0, sales of the FireFly surgical guides, and Bandloc. Sports medicine /
other decreased $0.2 million , or 15%, during the three months ended June 30,
2022 , and decreased $0.2 million , or 10%, during the six months ended June 30,
2022 . In each case, the decrease was driven by a decline in sales from our Telos
operations. Nearly all the change in each category was due to an increase or
decrease in the unit volume sold and not a result of price changes.
Cost of Revenue and Gross Margin
Cost of revenue increased$1.7 million , or 27%, from$6.3 million for the three months endedJune 30, 2021 to$7.9 million for the three months endedJune 30, 2022 . Cost of revenue increased$1.4 million , or 12%, from$11.4 million for the six months endedJune 30, 2021 to$12.8 million for the six months endedJune 30, 2022 . In both cases, the increase was due primarily to an increase in volumes sold. Gross margin was 77% for the three months endedJune 30, 2021 and 76% for the three months endedJune 30, 2022 . Gross margin was 77% for the six months endedJune 30, 2022 and 76% for the six months endedJune 30, 2021 .
Sales and Marketing Expenses
Sales and marketing expenses increased$1.6 million , or 14%, to$12.4 million for the three months endedJune 30, 2022 from$10.9 million for the three months endedJune 30, 2021 . Sales and marketing expenses increased$2.4 million , or 12%, to$22.2 million for the six months endedJune 30, 2022 from$19.8 million for the six months endedJune 30, 2021 . The changes in the three and six month periods endedJune 30, 2022 were due primarily to increased sales commission expenses, driven by increased unit volumes sold.
General and Administrative Expenses
General and administrative expenses increased$3.5 million , or 31%, from$11.1 million for the three months endedJune 30, 2021 to$14.5 million for the three months endedJune 30, 2022 . General and administrative expenses increased$4.6 million , or 20%, to$27.7 million for the six months endedJune 30, 2022 from the$23.1 million for the six months endedJune 30 , 2021.The increases for the three and six month periods endedJune 30, 2022 were due primarily to the addition of personnel and resources to support the continued expansion of our business and an increase in legal expenses, driven by two recent acquisitions, and other professional service expenses. Additionally, the Company saw higher expenses of approximately$0.9 million due to the acquisition of MD Ortho, including standard operating expenses and amortization of intangible assets which began amortizing on the date of acquisition. Depreciation and amortization expenses increased$0.6 million , or 24%, from$2.6 million for the three months endedJune 30, 2021 to$3.2 million for the three months endedJune 30, 2022 . Depreciation and amortization expenses increased$1.0 million , or 19%, to$6.1 million for the six months endedJune 30, 2022 from$5.1 million for the six months endedJune 30 , 2021.The increases for the three and six month periods endedJune 30, 2022 were primarily due to increases in depreciation from higher set deployments and the amortization of intangible assets, including licenses which had not yet been put into the market in the first half of 2021, as well as the intangible assets included in the acquisition of MD Ortho.
Research and Development Expenses
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Research and development expenses increased $0.4 million , or 32%, from $1.3
million for the three months ended June 30, 2021 to $1.7 million for the three
months ended June 30, 2022 . Research and development expenses increased $1.1
million , or 43%, to $3.8 million for the six months ended June 30, 2022 from the
$2.6 million for the six months ended June 30, 2021 . The increases for the three
and six month periods ended June 30, 2022 were primarily due to incremental
product development and the addition of personnel to support the future growth
of the business.
Total Other Expenses
Total other expenses reflect income of $3.0 million and expense of $1.2 million
for the three months ended June 30, 2022 and 2021, respectively, a decrease of
$4.2 million or 348%. Other expenses decreased $5.9 million , or 99%, to $60
thousand for the six months ended June 30, 2022 from the $5.9 million for the
six months ended June 30, 2021 . The decrease in total other expenses for each of
the three and six months ended June 30, 2022 was primarily due to the fair value
adjustments of contingent consideration, which was driven by the valuation
inputs that were lower in comparison to the same period last year. This was
offset by additional interest expense of approximately $0.7 million as the
result of the finalization of the ApiFix installment paid in the second quarter
and increased losses due to foreign currency conversions of approximately $1.1
million and $1.2 million for the three and six months ended June 30, 2022 ,
respectively. The increased interest expense was driven by the variance in our
closing stock price on the payment date compared to the 30 day average used to
calculate the number of shares paid, which increase was non-cash in nature.
Liquidity and Capital Resources
We have incurred operating losses since inception which resulted in negative cash flows for continuing operations from operating activities of$12.4 million and$10.9 million for the six months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 , we had an accumulated deficit of$187.5 million . We anticipate that our losses will continue in the near term as we continue to expand our product portfolio and invest in additional consigned implant and instrument sets to support our expansion into existing and new markets. Since inception, we have funded our operations primarily with proceeds from the sales of our common and preferred stock, convertible securities and debt, as well as through sales of our products. AtJune 30, 2022 , we had cash and cash equivalents, restricted cash and short term investments of$52.5 million . We also currently have$19 million available on our line of credit.
Cash Flows
The following table sets forth our cash flows from operating, investing and financing activities for the periods indicated:
Six
Months Ended
2022 2021
Net cash used in operating activities $
(12,367)
Net cash provided by (used in) investing activities 13,775 (7,332) Net cash provided by (used in) financing activities 27,741 (2) Effect of exchange rate changes on cash 400 29 Net increase (decrease) in cash $
29,549
Cash Used in Operating Activities
Net cash used in operating activities from continuing operations was$12.4 million and$10.9 million for the six months endedJune 30, 2022 and 2021, respectively. The primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these periods. Net cash used for working capital was$10.9 million for the six months endedJune 30, 2022 compared to 37 -------------------------------------------------------------------------------- a source of$10.4 million for the six months endedJune 30, 2021 . During the six months endedJune 30, 2022 , the primary driver of working capital cash usage was the increase in inventory of$10.9 million and trade receivables of$6.6 million , offset by trade payables of$5.3 million to support future sales growth. We also saw an increase in the sourcing of cash from other accrued expenses of$1.1 million .
Cash Provided by (Used in) Investing Activities
Net cash provided by investing activities for the six months endedJune 30, 2022 was$13.8 million compared to a use of cash of$7.3 million for the six months endedJune 30, 2021 . Net cash provided by investing activities for the six months endedJune 30, 2022 consisted primarily of the sale of short-term marketable securities to fund the acquisition of MD Ortho, which was offset by the purchases of instrument sets of$9.5 million and the cash consideration paid to acquire MD Ortho.
Cash Provided By (Used in) Financing Activities
Net cash provided by financing activities for the six months endedJune 30, 2022 was$27.7 million . Net cash used in financing activites for the six months endedJune 30, 2021 was not material to the results of our operations. Net cash provided by financing activities for the six months endedJune 30, 2022 consisted primarily of the proceeds from the$31 million of debt incurred in connection with the acquisition ofPega Medical Inc. , which was offset by the first anniversary installment payment to ApiFix.
Indebtedness
Loan Agreement
OnJune 13, 2022 , the Company entered into a Fourth Amendment (the "Fourth Amendment") to its Fourth Amended and Restated Loan and Security Agreement withSquadron Capital LLC , or Squadron (as so amended, the "Loan Agreement"). The Fourth Amendment increased the amount available under the revolving credit facility from$25 million to$50 million in anticipation of using the facility to fund the cash portion of the Company'sJuly 1, 2022 acquisition ofPega Medical Inc. The Loan Agreement provides a revolving credit facility, with interest only payments, at an annual interest rate equal to the greater of (a) six month SOFR plus 8.69% and (b) 10.0%. Prior toDecember 31, 2021 , the interest rate on the facility had been equal to the greater of (a) three month LIBOR plus 8.61% and (b) 10.0%. The Company pays Squadron an unused commitment fee in an amount equal to the per annum rate of 0.50% (computed on the basis of a year of 360 days and the actual number of days elapsed) times the daily unused portion of the revolving credit commitment. The unused commitment fee is payable quarterly in arrears. Borrowings under the revolving credit facility are made under a First Amended and Restated Revolving Note, datedAugust 4, 2020 (the "Amended Revolving Note"), payable, jointly and severally, by the Company and each of its subsidiaries party thereto. The Amended Revolving Note will mature at the earlier of: (i) the date on which any person or persons acquire (x) capital stock of the Company possessing the voting power to elect a majority of the Company's Board of Directors (whether by merger, consolidation, reorganization, combination, sale or transfer), or (y) all or substantially all of the Company's assets, determined on a consolidated basis; and (ii)January 1, 2024 . Borrowings under the Loan Agreement are secured by substantially all of the Company's assets and are unconditionally guaranteed by each of its subsidiaries with the exception of Vilex. There are no traditional financial covenants associated with the Loan Agreement. However, there are negative covenants that prohibit us from, among other things, transferring any of our material assets, merging with or acquiring another entity, entering into a transaction that would result in a change of control, incurring additional indebtedness, creating any lien on our property, making investments in third parties 38 --------------------------------------------------------------------------------
and redeeming stock or paying dividends, in each case subject to certain exceptions as further detailed in the Loan Agreement.
The Loan Agreement includes events of default, the occurrence and continuation of any of which provides Squadron with the right to exercise remedies against us and the collateral securing the loans, including cash. These events of default include, among other things, the failure to pay amounts due under the credit facilities, insolvency, the occurrence of a material adverse event, which includes a material adverse change in our business, operations or properties (financial or otherwise) or a material impairment of the prospect of repayment of any portion of the obligations, the occurrence of any default under certain other indebtedness and a final judgment against us in an amount greater than$250 thousand . The occurrence of a material adverse change could result in the acceleration of payment of the debt.
As of
Mortgage Note
InAugust 2013 , pursuant to the purchase of our office and warehouse space, we entered into a mortgage note payable toTawani Enterprises Inc. , the owner of which is a member of Squadron's management committee. Pursuant to the terms of the mortgage note, we payTawani Enterprises Inc. monthly principal and interest installments of$15,543 , with interest compounded at 5% until maturity inAugust 2028 , at which time a final payment of remaining principal and interest will become due. The mortgage is secured by the related real estate and building. The mortgage balance was$1.0 million and$1.0 million atJune 30, 2022 andDecember 31, 2021 , respectively.
Pediatric Orthopedic Business Seasonality
Our revenue is typically higher in the summer months and holiday periods, driven by higher sales of our trauma and deformity and scoliosis products, which is influenced by the higher incidence of pediatric surgeries during these periods due to recovery time provided by breaks in the school year. Additionally, our scoliosis patients tend to have additional health challenges that make scheduling their procedures variable in nature.
Critical Accounting Policies and Significant Judgments and Estimates
This management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods. We monitor and analyze these items for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
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