Rosetta Stone 2013 Annual Report Download - page 57

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Table of Contents
deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with
deferred tax assets. ASU 2013-11 is effective for the Company beginning January 1, 2014. The Company believes the adoption of ASU 2013-11 will not have
a material impact on the Company’s reported results of operations or financial position.

Foreign Currency Exchange Risk
The functional currency of our foreign subsidiaries is their local currency. Accordingly, our results of operations and cash flows are subject to
fluctuations due to changes in foreign currency exchange rates. The volatility of the prices and applicable rates are dependent on many factors that we cannot
forecast with reliable accuracy. In the event our foreign sales and expenses increase, our operating results may be more greatly affected by fluctuations in the
exchange rates of the currencies with which we do business. At this time we do not, but we may in the future, invest in derivatives or other financial
instruments in an attempt to hedge our foreign currency exchange risk.
Interest Rate Sensitivity
Interest income and expense are sensitive to changes in the general level of U.S. interest rates. However, based on the nature and current level of our
marketable securities, which are primarily short-term investment grade and government securities and our notes payable, we believe that there is no material
risk of exposure.

Our consolidated financial statements, together with the related notes and the report of independent registered public accounting firm, are set forth on the
pages indicated in Item 15.
54