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Table of Contents
Recent accounting pronouncements
In June 2013, the Financial Accounting Standards Board, or FASB, ratified Emerging Issues Task Force (EITF) Issue 13-C, “Presentation
of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” which
concludes an unrecognized tax benefit should be presented as a reduction of a deferred tax asset when settlement in this manner is available
under the tax law. We adopted this amendment in the first quarter of fiscal 2015, and the adoption did not have a material effect on our
consolidated financial statements.
In May 2014, the FASB issued guidance related to revenue from contracts with customers, which supersedes the revenue recognition
requirements in ASC 605, Revenue Recognition . Under this guidance, revenue is recognized when promised goods or services are transferred to
customers in an amount that reflects the consideration that is expected to be received for those goods or services. The new guidance also requires
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The updated standard
will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the full
retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for us in the first
quarter of our fiscal year ending June 30, 2019. We have not yet selected a transition method and we are currently evaluating the effect that the
updated standard will have on our consolidated financial statements and related disclosures.
In February 2015, the FASB, issued new guidance related to consolidations. The new standard amends the guidelines for determining
whether certain legal entities should be consolidated and reduces the number of consolidation models. The new standard is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. We are evaluating the
impact, if any, of adopting this new accounting guidance on our financial statements.
Interest rate sensitivity . The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize
income without significantly increasing risk. By policy, we do not enter into investments for trading or speculative purposes. Some of the
securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the fair value of the investment
to fluctuate. To minimize this risk, we invest in a variety of securities, which primarily consist of money market funds, commercial paper,
municipal securities and other debt securities of domestic corporations. Due to the nature of these investments and relatively short duration of the
underlying securities, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of
changes in interest rates. Declines in interest rates, however, will reduce future interest income. A 10% appreciation or depreciation in interest
rates in fiscal 2015 would not have had a material impact on our interest income or the fair value of our marketable securities.
Foreign currency risk . A substantial majority of our revenue has been generated to date from our end users in the United States and, as
such, our revenue has not been substantially exposed to fluctuations in currency exchange rates. However, some of our contracts with our
customers outside of the United States are denominated in currencies other than the U.S. dollar and therefore expose us to foreign currency risk.
Should the revenue generated outside of the United States grow in absolute amounts and as a percentage of our revenue, we will increasingly be
exposed to foreign currency exchange risks. In addition, a portion of our operating expenses are incurred outside the United States, are
denominated in foreign currencies and are subject to changes in foreign currency exchange rates, particularly the Chinese Renminbi, or RMB,
and the Romanian Leu. Additionally, changes in foreign currency exchange rates may cause us to recognize transaction gains and losses in our
statement of operations.
To date, we have not used any foreign currency forward contracts or similar instruments to attempt to mitigate our exposure to changes in
foreign currency rates.
The response to this item is submitted as a separate section of this Form 10-K. See Part IV, Item 15.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE