Pwc 2015 Technology Sector Sec Comment Letter Trends

www.pwc.com
Technology institute
November 2015
Highlights of SEC
comment letters and
financial reporting
trends in the technology
sector
Stay informed
2015 SEC comment letter
and disclosure trends
Technology

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The content of this publication is based on information available as of June 30, 2015. Accordingly, certain aspects of this publication may be superseded as new guidance or interpretations
emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretive guidance that
is issued.

Stay informed | 2015 SEC comment letter trends Technology 3
Contents
Message from Kevin Healy 5
SEC developments 7
What’s new 9
Internal controls and procedures 11
Revenue recognition 13
Management’s discussion and analysis 16
Compensation 25
Impairments 26
Income tax 28
Loss contingencies 29
Segments 30
Business combinations, variable interest entities, and divestitures 32
Other notable trends 34
Disclosure effectiveness 36
SEC comment letter process 37
About PwC's Technology Institute 39

Message from Kevin Healy
To our clients and friends:
Once again, companies are beginning to
prepare for another annual financial
reporting period. Keeping the focus on
high-quality financial reporting now,
while readying for future changes in the
landscape, continues to be a challenging
task.
We are pleased to introduce our third
annual publication, which focuses on
trends in SEC staff comment letters
specific to companies in the technology
sector. We have analyzed over 1,200
comments issued from July 1, 2014 to
June 30, 2015 to companies in the
Computers & Networking,
Semiconductors, and Software &
Internet subsectors. While some
comments are applicable to all
companies in the technology space,
others are subsector specific.
In addition to providing you with
insights from SEC staff comment
letters, this year we have also analyzed
the annual filings of 90 registrants
across the subsectors over the last
twelve months. Specifically, we have
benchmarked selected disclosures,
including those related to non-GAAP
measures, segment reporting, and
internal control over financial
reporting.
We hope our benchmarking study, along
with our analysis of SEC staff comment
letters, provides useful and thought-
provoking insights that can aid you in
the preparation of your upcoming
filings.
Please don’t hesitate to reach out to your
engagement teams, the PwC contacts
listed at the end of the publication, or
me to discuss this information in more
detail. We look forward to working with
you in 2016.
Best regards,
Kevin Healy
US Technology Assurance Leader

SEC developments
Accounting and financial reporting are at the heart of the
SEC’s core mission. Accurate, reliable, and transparent
financial information provides investors the tools they
need to make informed decisions and build the trust and
confidence that promote capital formation. So it comes
as no surprise that 2015 was another year of heavy
interest for the SEC in the accounting and financial
reporting arena.
One area the SEC staff was keenly focused on in 2015
was the implementation of the new revenue accounting
standards. Whether by facilitating the identification and
resolution of broad-based practice issues or encouraging
companies to take a fresh look at their revenue-related
internal controls, the SEC staff is working to promote a
successful implementation and consistent application in
the US and around the world. Revenue is one of the most
important financial measures used by investors across
industries and geographies, and the SEC wants to make
sure the transition to the new standards is a smooth one.
Once the new revenue standards have been
implemented, the accounting in that area will be largely
converged. Still, there was much discussion throughout
2015 about whether International Financial Reporting
Standards should play a broader role for US public filings
of domestic registrants. The SEC staff heard from a wide
array of stakeholders in 2015. Through those discussions,
they heard that there is continued support for the
objective of a single set of high-quality, global accounting
standards. However, they also heard that there is little or
no support for the SEC to require all companies to
prepare their financial statements using IFRS or even to
provide US companies an option to do so (although there
is ongoing consideration of whether US companies
should have the option of providing supplemental IFRS
information). So what does all of this mean? It's not clear
what the next steps are, but Jim Schnurr, the SEC's Chief
Accountant, recently remarked that for now, it appears
that the most likely path for advancing the objective of
high-quality, global accounting standards is for the FASB
and the IASB to continue to work together to converge
their standards.
During 2015, we also saw a continuation of the SEC’s
agency-wide emphasis on internal controls as the SEC
staff continued to ask questions when a filing disclosed
immaterial accounting errors—especially when there
have been multiple errors. The staff is probing beyond
what happened at the transaction level and is seeking to
understand the root cause of the deficiency—looking beyond
the individual control activities and asking whether there are
broader issues involved. For instance, if a particular error
related to a new line of business, revenue stream, or
geography, they may ask how the company evaluated whether
the deficiency relates to its risk assessment, monitoring, or
control environment. The SEC staff is also looking closely at
how the company evaluated the severity of the deficiency—
focusing both on the magnitude of the actual error and on the
volume of activity that reasonably could have been exposed to
the deficiency. The SEC recognizes that a company’s internal
controls form the foundation of accurate financial reporting,
and this is undoubtedly an area of long-term interest.
But the SEC’s interest in financial reporting and internal
controls is not limited to the Commission’s accountants. The
Enforcement Division has expressed great interest in these
areas as well. Enforcement actions and investigations in the
financial reporting area have increased substantially over
prior years. “Corporate disclosure and financials” is at or near
the top of the list of most frequent whistleblower allegations,
and internal controls have figured prominently in several
recent enforcement cases, including some where there were
no underlying fraud charges. Additionally, following on from
its “accounting quality model,” the Division of Economic and
Risk Analysis devoted substantial effort over the past year to
buildout its data-driven Corporate Issuer Risk Assessment
tool (known as CIRA), which provides staff across the agency
(including the Enforcement Division’s Financial Reporting
and Audit Task Force) with more than 100 custom metrics
designed to identify situations or activities that warrant
further inquiry.
2015 was a busy year at the SEC, and with the pending
confirmation of 2 new Commissioners, the implementation of
securities-based crowdfunding and further progress on the
disclosure effectiveness, clawback and pay versus performance
initiatives on the horizon, 2016 promises more of the same, but
the continued focus on accounting, financial reporting and
internal control are sure to remain high on the priority list. We
hope you find the analysis that follows helpful as you navigate
this year's financial reporting season.
John A. May
SEC Services Leader

What’s new
SEC staff comments received by technology
companies continued to decline in 2015.
The number of comments received in 2015 decreased 20
percent compared to 2014, even after a 26 percent
decrease from 2013 to 2014 (see Figure 1).
Each subsector experienced a decrease in the number of
comments received from 2014 to 2015, with the
semiconductor subsector decreasing at the highest rate of
27 percent (see Figure 2).
Our analysis shows that while there is an overall decrease
in the number of comments received, this trend continues
to be driven by a decrease in the number of technology
companies receiving comment letters, while the average
number of comments per registrant was flat (see Figures 3
and 4). We noted that the number of technology
companies reviewed declined by nearly 17 percent from
2014 to 2015, compared to a 4 percent decline from 2013
to 2014. This decline was most significant in the
semiconductor industry where the number of companies
reviewed declined by 29 percent from 2014 to 2015.
Despite the decline in the overall volume of comments
received from 2014 to 2015, we saw an increase in the
number of comments received in the revenue recognition,
internal control over financial reporting, and disclosure
controls and procedures areas. We also saw increases in
comments related to compliance and the business section.
We explore all of these areas in greater detail in this
publication.
2,079
1,538 1,226
2013 2014 2015
Figure 1. Overall volume of comments
744
258
224
905
325
308
1,230
484
365
Software & Internet
Computers & Networking
Semiconductors
Figure 2. Volume of comments by
subsector
2013 2014 2015
9
8
6
87
4
5 66
5 6 6
Software &
Internet
Computers &
Networking
Semiconductor Overall
Figure 3. Average number of comments by
subsectors
2013 2014 2015
130
64 60
254
125
57 62
244
115
44 44
203
Software &
Internet
Computers &
Networking
Semiconductor Total
Figure 4. Number of companies reviewed
2013 2014 2015

What’s new
In addition to SEC comment letter trends, throughout
this publication, we share our insights from the
financial reporting trends study we performed. We
analyzed disclosures in the annual filings of 90
registrants in the technology industry related to
internal control, segments, critical accounting policies
and estimates, and non-GAAP measures.
We also looked at the number of days from a
company’s year-end to the filing of its earnings release
and its annual report on Form 10-K, respectively. On
average, the companies in our study took 38 days to
file their earnings release and 57 days to file their 10-K.
10 companies filed their earnings release within a day
of filing their 10-K. A shorter gap between the two may
prevent preliminary information from being included
in the earnings release. Preliminary information may
change materially, which could challenge the
effectiveness of a registrant’s DC&P and ICFR.
We note your filing of Form 8-K on February 6, 20X5
wherein you adjusted your fourth quarter and full year
20X4 financial results from those previously reported in
the Form 8-K you filed on January 21, 20X5… Please tell
us more about the nature of the adjustment, why it
occurred and whether you concluded the revision was
material. If you concluded the revision was not material,
please explain to us in reasonable detail whether and how
your controls would have caught this error prior to
publishing your financial information in your earnings
release if the error had been material. Additionally, we
note you concluded that both your DCP and ICFR were
effective as of December 31, 20X4. Please tell us in detail
how you considered the aforementioned revision of
income tax benefits in your assessment and ultimate
conclusions of the effectiveness of your DCP and ICFR as
of December 31, 20X4. In your response, please describe
to us the internal controls you had in place that were
relevant to the adjustment…
Methodology
This study of comment letter trends was based on an
analysis of comments posted on the SEC’s EDGAR
website from July 1, 2014 to June 30, 2015 (referred to as
“2015”) related to technology companies (domestic and
foreign registrants reporting under US GAAP) specific to
their periodic filings on Forms 10-K, 10-Q, 20-F, 8-K and
6-K. The comparative periods, referred to as 2014 and
2013, represent our analysis of comments posted on the
SEC’s EDGAR website from July 1, 2013 to June 30, 2014
and July 1, 2012 to June 30, 2013, respectively.
The financial reporting trends study was based on an
analysis of registrant filings on Form 10-K posted to the
SEC’s EDGAR website from July 1, 2014 to June 30,
2015 by 90 technology companies reporting under US
GAAP. We analyzed disclosures included in annual
filings on Form 10-K and some limited information
from current reports on Form 8-K filed during the same
period. The study included an even distribution of
companies within each of the subsectors listed below,
with an equal representation of companies with
revenues below $500 million, between $500 million -
$1.0 billion, and greater than $1.0 billion.
Each subsector includes registrants categorized under the
following SIC codes:
Software& internet—7370,7371,7372,7373, 7374, 7389
Computers & networking—3570, 3571, 3572, 3576, 3577,
3578, 3661, 3663, 3669, 3812, 3825, 3861, 4899, 5045, 5065
Semiconductors—3670, 3672, 3674, 3679
Certain registrants’ business may span multiple
technology subsectors. For consistency of evaluation,
our analysis was based solely on the SIC code for each
registrant, as indicated on the SEC’s EDGAR website.
0 200 400 600
Management's discussion and analysis
Business combinations, divestitures, and
variable interest entities
Revenue recognition
Income taxes
Internal controls
Compensation
Goodwill, intangible assets, and long-
lived assets
Segment reporting
Loss contingencies
Other notable trends
Figure 5. Comments by topic
2013 2014 2015
34
52
18
48
68
20
38
70
32
Press Release Form 10-K Difference
Figure 6. Average days to file from
period end date
Large Accelerated Accelerated
Non-accelerated and SRC

Internal controls and procedures
Internal control over financial reporting
continues to be a focus area of the SEC.
The SEC staff continues to focus on internal control over
financial reporting (ICFR), and we have seen an increase in
the volume of comments in this area since 2014. Registrants
should continue to carefully consider the ICFR and
disclosure controls and procedures (DC&P) implications of
their responses to the SEC staff, even when the SEC staff has
not raised any questions regarding internal control.
Registrants should also continue to assess the sufficiency,
accuracy, and completeness of their disclosures and
certifications.
Recent SEC staff comments reflect their concern that not all
material weaknesses are being properly identified, evaluated,
and disclosed. Specifically, they continue to question why a
restatement did not result in the reporting of a material
weakness. Over the past year, several SEC staff members have
emphasized the fact that there is a low number of material
weaknesses reported in the absence of a restatement or other
known material error, implying that it is possible the “could factor”
or the potential exposure is not being correctly evaluated.
1. Based on the reasons for the previously identified errors and
your internal review of the contract, tell us if you have re-
evaluated the effectiveness of your internal controls over
financial reporting and what your conclusions are.
The SEC staff has also questioned registrants when there is
no explicit conclusion about the effectiveness of DC&P or
when management has concluded that ICFR is ineffective
while DC&P is effective. Although separately assessed, it is
important to remember there is substantial overlap between
the processes included in the definition of DC&P and those
considered part of ICFR. Nearly all of ICFR falls within the
scope of DC&P, whereas there are aspects of DC&P that
extend beyond what is considered part of ICFR. As such, it is
rare that a material weakness in ICFR would not also result
in DC&P being considered ineffective.
2. Please tell us how you considered the correcting adjustments
discussed in your filing in concluding that your disclosure
controls and procedures were effective at June 29, 20X4.
Further, we note that the material weaknesses you identified in
your internal control over financial reporting include the fact
that the company did not have sufficient qualified financial
reporting and accounting personnel equipped with appropriate
U.S. GAAP and SEC reporting and disclosure knowledge or
experience. Given the definition of disclosure controls and
procedures outlined in Rule 13a-15(e), please explain in detail
how your management was able to conclude that DC&P were
effective at December 31, 20X3.
In the sample of technology companies studied, eight
registrants, or nine percent, reported ineffective
internal control over financial reporting as of the end
of their most recent fiscal year. Material weaknesses
were identified in the areas of income taxes, revenue
recognition and associated estimates, inventory
valuation, stock-based compensation, and journal
entries. Of the eight registrants reporting material
weaknesses, six also reported corresponding revisions
or restatements to correct errors in the financial
statements.
Item 308 of Regulation S-K requires registrants to
disclose any change in the company’s ICFR that has
materially affected, or is reasonably likely to materially
affect, the registrant’s ICFR each quarter. Changes
requiring disclosure include changes in internal control
made in the process of remediating previously
identified material weaknesses, as a result of the
integration of significant acquisitions, or due to the
implementation of new information technology
systems. The SEC staff often looks to information
contained in companies’ current reports, on their
websites, and in other sources to identify potential
changes in ICFR. SEC staff comments in this area have
focused on the timeliness and completeness of the
disclosures in periodic filings.
3. Please disclose whether there was any change in your
internal control over financial reporting during your
fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, your internal
control over financial reporting. In this regard, we note
that your Form 10-Q for the period ended September 30,
20X3 disclosed that you identified a material weakness
in your internal control over financial reporting as of
September 30, 20X3. If the disclosure in this Form 10-K
was intended to indicate that your internal control over
financial reporting was effective as of December 31,
20X3, you must have had material changes to your
internal control financial reporting in the quarter ended
December 31, 2013 to remediate that material weakness.
Refer to Item 308(c) of Regulation S-K.

Internal controls and procedures
Mergers and acquisition activity continues to be
significant as companies are looking for growth
opportunities and/or efficiencies from consolidation.
Of the technology companies studied, 51 percent
completed one or more acquisitions during their most
recent fiscal year. If a registrant completes a business
combination during the year, the SEC does not object if
management (and the auditor) excludes the acquired
business from their report on internal control over
financial reporting. This “grace period” cannot exceed
12 months from the date of the acquisition.
Management must identify the acquired business
excluded and indicate the significance of that business
to the registrant’s consolidated financial statements.
Even when registrants take advantage of this
accommodation, they must disclose any material
changes to their internal controls due to the acquisition
and any known material weaknesses in the acquired
business’s controls.
Approximately 20 percent of the registrants studied
that completed acquisitions during the year took
advantage of the permitted exclusion. These
acquisitions were completed anywhere from the first
month of the year all the way to the last month of the
fiscal year. The significance of the excluded acquired
businesses varied significantly, ranging from 1 to 19
percent of total assets and from 1 to 13 percent of total
revenue.
In addition to comments related to ICFR and DC&P,
the SEC staff also issued a number of comments related
to the certifications provided pursuant to Sections 302
and 906 of the Sarbanes-Oxley Act. These comments
focused on certifications that referred to the wrong
filing or did not follow the prescribed wording specified
in Item 601 of Regulation S-K. A registrant that files
incorrect certifications has to file an amendment of the
entire periodic report as specified in Compliance and
Disclosure Interpretation 161.08.
4. We note this certification refers to the report for the quarter
ended September 29, 20X3. Please file a full amendment to
your March 30, 20X4 Form 10-Q, including updated
certifications, to include a Section 906 certification from your
President and Chief Executive Officer that refers to the current
quarterly report on Form 10-Q of the company for the quarter
ended March 30, 20X4.
5. We note that you did not include the reference to internal
control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) in the introductory language in
paragraph 4 of the certifications in exhibits 31.1 and 31.2.
Please confirm that your certifications in future filings will
include the introductory language of paragraph 4 in exact
form as specified in Item 601(b)(31)(i) of Regulation S-K.
Please note that similar concerns apply to your Form 10-Q for
the quarterly period ended March 31, 20X4.
14%
29%
36%
21%
Figure 7. % of excluded acquisitions
completed in each quarter
Q1 Q2 Q3 Q4

Revenuerecognition
Comments on revenue recognition
increased in 2015, representing 12
percent of the comments received by
technology companies, up from 9
percent for the 2014 year.
Multiple-elementarrangements
Multiple-element arrangements continue to be a
focus area of the SEC staff’s comments on revenue
recognition. While the technical guidance has not
changed, application of the existing guidance
remains challenging. For arrangements with
multiple deliverables, Accounting Standards
Codification (ASC) 605, Revenue Recognition,
requires that companies allocate arrangement
consideration among deliverables using their best
estimate of selling price (BESP) when vendor-
specific objective evidence (VSOE) or third-party
evidence (TPE) of the selling price is not available.
Registrants’ critical accounting estimates and
judgments related to multiple-element
arrangements continue to be among the most
common revenue-related comments in the
technology sector. They include questions about
determining the appropriate units of accounting
and the valuation techniques and assumptions used
to arrive at their respective values, as well as the
periods over which revenue should be recognized.
1. We note that for multiple element arrangements you
recognize revenue for each delivered item or items as
a separate earnings process when they have value to
the customer on a standalone basis. Please tell us
how you allocate the consideration received in the
arrangement to all deliverables and describe the
significant factors, inputs, assumptions and methods
used to determine the allocation. Please also tell us
what consideration was given to disclosing this
information. Refer to ASC 605-25-30-2 and ASC
605-25-50-2(e).
2. You disclose that TPE is generally not available
because your service offerings are highly
differentiated and you are unable to obtain reliable
information on the pricing practices of your
competitors. In light of your highly differentiated
service offerings, please describe for us how you
determine that each element in your multiple
element arrangements has stand-alone value. Refer
to ASC 605-25-25-5.
Vendor-Specific Objective Evidence: For arrangements
accounted for under the software revenue
recognition guidance, registrants must use VSOE to
allocate the consideration among the multiple
elements in an arrangement. The SEC staff
frequently challenges companies about how they are
able to determine VSOE and has requested
enhanced disclosure to that effect in the financial
statements. In addition to enhanced disclosure, the
SEC staff has, at times, requested that registrants
provide their VSOE analysis.
3. We note that you have multiple element
arrangements that can include implementation
services and post contract customer support in
addition to software and subscription services.
Please tell us how you establish VSOE for the
post contract customer support included in your
software arrangements.
4. We note that you have established vendor-
specific objective evidence (VSOE) of selling
price for the combined maintenance component
when you sell your solution bundled with the
software. Please describe, in detail, your
methodology for establishing VSOE for
combined maintenance services. If VSOE is
based on stated renewal rates established by
management, then please tell us how you
determined the renewal rates are substantive. In
this regard, please provide the range of renewal
rates and tell us what percentage of your
customers actually renew at such rates or
whether there have been any changes to these
rates upon renewal. Alternatively, if VSOE is
based on stand-alone sales, then provide the
volume and range of stand-alone sales used to
establish VSOE.
5. We see that you determine vendor specific
evidence (VSOE) of fair value based on a bell-
shaped curve approach. Please describe to us the
nature of the bell-shaped curve approach and its
application in your policy. Please discuss the
methodology for determining the bell-shaped
curve utilized in your model and describe how
the curve varies amongst transactions or when
specific elements are sold separately.
Software revenue recognition
Software licensing arrangements and related
questions regarding revenue recognition continue to
present challenges to the preparers of financial
statements. The primary accounting guidance is
included in ASC 985-605, Software-Revenue
Recognition. The SEC staff’s comments have been
focused on the following areas.
More-than-incidentalconsiderations:Determining
whether a software element is more than incidental
to the overall arrangement is a matter of judgment.
The staff’s comments in this area have asked for an
explanation of how the software and hardware
components function together and for more
transparent disclosure of the company’s accounting
policy.

Revenue recognition
6. We note your disclosure that in multiple element
arrangements where software is essential to the
functionality of the products, revenue is allocated to
the non-software deliverables and software
deliverables as a group using the relative selling
price. Please clarify why you allocate revenue to the
non-software deliverables and the software
deliverables when the software is essential to the
functionality of the product. In this regard, if the
software is essential to the product, the combined
deliverable would be scoped out of ASC 985-605.
Refer to ASC 985-605-15-4(e).
Servicesrevenue: The SEC staff continue to focus
on revenue recognition for companies that deliver
services. Whether the services revenue relates to
software-as-a-service arrangements, set-up fees,
training, licenses, or customer support, the staff
has raised questions about the timing of revenue
recognition and whether the service has stand-
alone value in a multiple-element arrangement.
In addition, comments focused on the
appropriate period over which to recognize
services revenue: the term of the contract or the
estimated term of the customer relationship more
broadly.
7. We note your disclosure that implementation
services that are delivered prior to the customer
being able to use the platform do not have
stand-alone value and are recognized over the
longer of the life of the subscription or the
expected life of the customer relationship.
Please explain your basis for concluding that
these services do not have standalone value and
tell us how you considered ASC 605-25-25-5(a).
In this regard, we note that you disclose that
these services can be provided by the Company,
third-party service providers or distributors.
8. We note you disclose that for cloud offerings in
multiple element arrangements, where units of
accounting include more than one deliverable
but are treated as a single unit of accounting,
you recognize revenue generally over the
estimated customer relationship period. Please
tell us what deliverables are typically included in
these types of arrangements and considered one
unit of accounting. Further, tell us why you
believe it is appropriate to recognize these
arrangements over the customer relationship
period, citing the accounting guidance followed,
as it appears you are otherwise recognizing
revenue from your cloud offerings over the
related contract term. Lastly, tell us how much
revenue these arrangements generated in the
periods presented.
Other trends related to revenue recognition
Gross vs. net: Registrants in the technology sector
may act as intermediaries between other companies
and end customers. For example, they could be
fulfilling obligations to deliver IT equipment and
parts, selling internet media services on behalf of
another company, or hosting game software on their
platform. In these cases, registrants need to
determine whether to present revenue on the gross or
net basis, which requires analysis of the arrangement
using criteria specified in ASC 605-45. The analysis is
aimed at determining whether the company acts as a
principal or an agent in the arrangement with the end
customer. SEC staff comments frequently asked for
registrants’ detailed analysis of the factors listed in
the authoritative guidance and, while the ultimate
conclusion is an area of significant management
judgment, greater emphasis is placed on who is the
primary obligor, who has the ability to set prices, and
who bears inventory risk.
9. We note that the majority of your revenues
related to third-party products and services are
recognized on a gross basis as you are generally
acting as the principal under the arrangements.
Please clarify whether your arrangements with
third party device manufacturers that integrate
your models into their products are recognized
on a gross basis. Describe the significant terms
of your revenue arrangements with third party
device manufacturers. In addition, provide an
analysis that supports your presentation taking
into consideration all of the factors outlined in
ASC 605-45-45.
10. Please tell us in detail the nature of your
advertising revenues from sponsored access,
promotional programs, and online display
advertising on your managed and operated
networks and your partner networks. Please tell
us if such advertising revenues are part of
multiple element arrangements and if so,
provide us with an analysis of your revenue
recognition policy for such arrangements. In
addition, tell us how you considered whether
your advertising revenues should be recognized
on a gross or net basis pursuant to ASC 605-45-
45.
11. We note from your disclosure that you offer
some of your services through third party
vendors. Please tell us more about these
relationships and how your account for revenue
from these arrangements. Please refer to the
authoritative guidance you relied upon when
determining your accounting.
Income statement presentation: Regulation S-X 5-03(1)
requires separate presentation in the income statement
for product, service, and other revenue, to the extent
that the amounts related to any of these categories
exceed 10 percent of total revenues. In addition to
separate presentation of revenue, the guidance also
requires cost and expenses related to each revenue
category to be reflected separately in the income
statement. The SEC staff may question registrants’
aggregate presentation of revenue and expense line
items in the income statement, as more disaggregated
information provides investors with additional insight
into a company’s business.

Revenue recognition
12. We note the discussion in your filing about
revenue generated from professional services.
Revenue and related costs from service
arrangements that account for more than 10% of
net sales should be separately presented on the
face of the statements of operations. Please tell
us how your presentation complies with Rule 5-
03(b)(1) and Rule 5-03(b)(2) of Regulations S-X
or revise future filings as necessary to separately
present revenues and related costs from tangible
goods and services in your statements of
operations.
13. We note that you separately present revenues as
"advertising and other" and “subscription." Tell
us what consideration you gave to presenting
costs of revenues in the same manner. Refer to
Rule 5-03(b) of Regulation S-X.
14. We note that you aggregate software,
maintenance and services in your revenues and
the related cost of revenues line items in your
Consolidated Statements of Income. Please tell us
how you considered providing separate disclosure
of software products and service revenues and the
related cost of revenues pursuant to Rule 5-
03(b)(1) and (2) of Regulation S-X.
15. We note that you classify revenue from
subscription services within the “product licenses
and subscription services” line item. Please
explain your basis for including subscription
services with product revenues. In this regard, we
note that these are services, and you refer to them
as “service contracts.” See Rule 5-03(b)(1) and (2)
of Regulation S-X.

Management’s discussion and analysis
Management’s discussion and analysis of
financial condition and results of
operations (MD&A) is a critical
component of registrants’
communications with investors.
The key objectives of MD&A are to provide a narrative
explanation of the financial statements that enables
investors to see the company through the eyes of
management, to offer context to the financial statements,
and to provide information that allows investors to assess
the likelihood that past performance is indicative of future
performance. We have found that the majority of SEC
staff comments in this area are not aimed at meeting
specific technical requirements, but rather at enhancing
the quality of disclosures to meet these objectives.
The requirements themselves are set forth in Item 303
of Regulation S-K, which identifies five categories of
disclosure in MD&A: liquidity, capital resources,
results of operations, off-balance-sheet arrangements,
and contractual obligations. Additional guidance is
also contained in Financial Reporting Release (FRR)
36 and FRR 72. More recently, the SEC has renewed
its commitment to coordinate with the FASB on their
joint disclosure effectiveness project to develop
recommendations focused on improving and
streamlining disclosure requirements.
Ultimately, this project is expected to result in updates
to Regulations S-K and S-X that may reduce the costs
and burdens on companies and eliminate duplicative
disclosures in MD&A, but may also identify
opportunities to increase the transparency of
information, which may lead to new requirements. In
the meantime, absent formal rule changes, SEC
comments in the past year related to MD&A reflect
this initiative to streamline disclosures by asking
registrants to tailor boilerplate language in areas such
as risk factors and legal proceedings, avoid duplication
(e.g., between critical accounting policy and summary
of significant accounting policy disclosures), and
eliminate outdated information.
In doing so, the comment letter process has reinforced
the well-established MD&A objectives that disclosures
should be 1) transparent in providing relevant
information, 2) tailored to the company’s facts and
circumstances, 3) consistent with the financial
statements and other public communications, and 4)
comprehensive in addressing the many business risks
that exist in today’s economic environment. Results of
operations and liquidity and capital resources have
received the most attention in SEC comment letters
relative to these objectives (see Figure 8).
Results of operations
SEC staff comments continue to focus on the
requirements of S-K Item 303(a)(3), reminding
registrants that the results of operations section
should provide readers with a clear understanding of
the significant components of revenues and
expenses, as well as events, transactions, and
economic trends that have resulted in or are likely to
cause a material change in the relationship between
costs and revenues.
The SEC staff has frequently issued comments
specifying that MD&A should not simply repeat
information provided elsewhere in the filing; rather,
it should explain the underlying drivers behind
changes in the financial position, results of
operations, and cash flows of registrants.
Increasingly, registrants are being challenged to
quantify the impacts that such factors have had,
especially when an account has been impacted by
multiple factors. General observations on the
population of SEC staff comments include the
following:
Disclosing known trends: The SEC staff has asked
registrants to disclose known trends affecting the
business, in particular, disclosure of events that have
occurred and how those events were a positive or
negative indicator of future performance. Examples
include loss of a significant customer, development
50%
26%
17%
3% 4%
61%
21%
14%
3%
1%
53%
20%
13%
9%
5%
Results of
operations
Liquidity
and capital
resources
Non-GAAP
measures
Critical
accounting
policies
Other
Figure 8. Breakdown of MD&A comments
by area
2013 2014 2015

of new products that might increase future revenues
or reduce costs, entering a new market, or an
acquisition that is expected to impact operating
results significantly. In addition, they encourage the
discussion of key operating metrics used by
management, coupled with an analysis of the
relationship between such metrics and GAAP results.
1. In future filings, please expand you explanation of
material drivers of changes in your financial results to
address not only the causes of the changes but the
reasons behind why the causes occurred. For example,
you disclose that your financial results were negatively
impacted beginning in August 20X4 by “significant
reductions in carrier capital spending…” Such a
discussion should also address why customers’ capital
spending dropped and whether management believes
this to be a seasonal event going forward.
2. We note your net increase in net subscriber equipment
sales was due to the introduction of the X product line
for the three and nine month periods ended
September 30, 20X4. However, we also note a trend in
declining satellite handset sales in 20X3 that has
continued in 20X4. Please disclose in future filings, in
greater detail, the impact of the trends in terms of
equipment sales volume and product mix of your
different product lines on your business and results of
operations. We note your disclosure that you
anticipate subscriber equipment revenue for the full
year 20X4 to exceed full year 20X3.
Drivers behind fluctuations: Many comments relate to
improving registrants’ disclosures of significant
fluctuations between periods, including pricing,
volume, the impact of acquisitions, and currency
movements. The SEC staff has asked for more detailed
descriptions related to the specific factors driving such
fluctuations and for registrants to quantify each factor
separately, even when they net to an insignificant
change overall.
3. We note that your explanation of the 33% increase in
revenues in fiscal 20X4 does not specify in
quantitative terms the contributions from what you
disclose as the volume-driven increases from new
customers, upgrades and additional subscriptions
from existing customers and a decline in attrition
rates. In addition, you disclose that the acquisition of
X in July 20X3 resulted in a majority of the increased
demand for services in 20X4. Please tell us why you
have not disclosed more quantitative analysis of
revenues resulting from the contributing factors you
disclosed as well as from the acquisition of X. Refer to
Item 303(a)(3) of Regulation S-K and Section III.B.3
of SEC Release 33-8350.
4. We note that revenue increases in your various
service lines are attributed to the addition of new
clients and/or rate increases for existing clients.
Please tell us what consideration was given to
disclosing the extent to which revenue increases
were attributed to increases in prices or to increases
in the volume or amount of services being sold.
Refer to Item 303(a)(3)(ii) of Regulation S-K. Also,
wherever multiple factors are cited as the
underlying drivers for changes in revenues or
expenses, tell us what consideration was given to
quantifying each factor. Refer to Section III.D of
SEC Release 33-6835.
Consistency of information: The SEC staff has been
known to review public information for consistency
with the information included in a registrant’s
periodic filings. When management discusses events
or trends on earnings calls, social media channels,
investor materials, or the company’s website, the SEC
staff may question why such events are not also
addressed in MD&A.
5. Your corporate blog recently identified certain
challenges related to your business and revenue
growth. For example, a recent blog post provided
the following updates on your business: "We have
been experiencing a great deal of interference in
this endeavor, resulting from macro factors
affecting patents generally and standard essential
patents in particular"; “Notwithstanding our lack of
traction thus far in our enforcement efforts ..."; and
“[T]he sticking issue has been -- and remains
divergent opinions of royalty values." Please tell us
what consideration you are giving to expanding
your MD&A overview in future filings to provide
insight into challenges and risks such as those
described above. Refer to Section III.A of SEC
Release 33-8350.
Segment discussion: SEC staff comments have also
encouraged the use of a segment analysis if such
analysis would provide readers with a more in-depth
understanding of the consolidated results. The
segment analysis may be integrated with the
discussion of the consolidated results to avoid
unnecessary duplication.
6. We note that you assess performance of your
segments using income (loss) from operations,
among other things. We also note that you present
income (loss) from operations and operating
margins for each of your reportable segments. It
appears that segment income (loss) from operations
and operating margins have varied significantly for
each of your segments, however, your discussion of
segment results does not address these variances.
Please tell us what consideration was given to
discussing income (loss from operations) and
operating margins by segment, or tell us why such
information is not necessary in obtaining an
understanding of your business.
Liquidity and capital resources
A key objective of the liquidity and capital resources
discussion is to provide a clear picture of the
registrant’s ability to generate cash and to meet
existing known or reasonably likely future cash
requirements. In accordance with items 303(a)(1)
and (2) of Regulation S-K, the SEC staff expects the
liquidity and capital resource discussion to address
material cash requirements, sources and uses of
cash, and material trends and uncertainties related
to a registrant's ability to use its capital resources to
satisfy its obligations. General observations on the

population of SEC staff comments include the
following:
Disclosure of events impacting liquidity: The SEC
staff has asked registrants to discuss known trends,
events, or uncertainties that are reasonably likely to
impact future liquidity. Such events could include
entry into material commitments, loss of customers
or contracts, loss contingencies, treasury stock
repurchase programs, or plans for significant capital
expenditures.
7. Please consider expanding your overview in future
filings to include a more detailed assessment of
whether the trends and uncertainties of transitioning
from your legacy product suite to your new product
offerings will have, or are reasonably likely to have, a
material impact on the company’s liquidity, capital
resources or results of operations. See Item 303 of
Regulation S-K. For additional guidance, consider
Section III of SEC Release No. 33-8350.
8. In future filings, please consider expanding your
management’s discussion and analysis to provide a
balanced and meaningful discussion of known
material trends and uncertainties that will, or are
reasonably likely to, have a material impact on your
revenues or income or result in your liquidity
decreasing or increasing in any material way. For
example, consider discussing the deceleration of your
revenue growth and any trends related to your
negative cash flows to the extent any are known trends
or uncertainties that you expect may continue to
impact your results in future periods. Further, please
discuss in reasonable detail any economic or industry-
wide factors relevant to your company and any
material opportunities, challenges and risks you may
face in the short and long term and the actions you are
taking to address them. For guidance, please consider
Sections III.A and III.B of SEC Release No. 33-8350.

Debt agreements and related covenants: Comments from
the SEC staff have requested expanded disclosure of the
material terms of debt agreements, including an indication
of compliance with financial covenants. In situations
where there has been or is projected to be a violation with
regard to covenant compliance, registrants should provide
a detailed description of the covenants, the target and
actual covenant measures for the most recent reporting
period, and an indication of the sensitivity of those
measurements, if applicable. Other items potentially
impacting the availability of credit should also be made
clear, including limitations on the ability to draw on
existing lines of credit, or other borrowing limitations.
9. Tell us what consideration you gave to describing the
material covenants related to your outstanding debt,
including the amount or limit required for compliance
with the covenants and the actual or reasonably likely
effects of compliance or non-compliance with the
covenants on your financial condition and liquidity. In
this regard, we note that you were in breach of one of the
financial covenants under your short-term bank
borrowings. Refer to Section IV.C of SEC Release 33-
8350, Commission Guidance Regarding Management’s
Discussion and Analysis of Financial Condition and
Results of Operations. Provide us with any proposed
revisions to your disclosure in future filings.
Stranded cash: For companies with foreign operations,
the SEC staff has focused on the registrant’s ability to
repatriate cash to the United States in order to meet
significant upcoming obligations, such as debt
repayments or mandatory pension contributions.
Comments have focused on the relationship between
liquidity needs and the income tax assertion about
management’s intent to permanently reinvest foreign
earnings. The SEC staff has also asked companies to
quantify the amount of cash held overseas and the
amount of incremental deferred tax, if any, that
would be recorded if cash were to be repatriated. This
is also a common topic in SEC staff comments related
to income taxes.
10. We see that your U.S. operations have historically
generated net losses and that you intend to indefinitely
reinvest undistributed earnings of your foreign
subsidiaries. Please quantify for us the amount of cash,
cash equivalents, and investments held by foreign
subsidiaries that would be subject to a potential tax
impact associated with the repatriation of
undistributed earnings on foreign subsidiaries. Please
also tell us your consideration of providing enhanced
liquidity disclosures to describe these amounts that
would be subject to potential repatriation of
undistributed earnings taxes to illustrate that some
cash and investments are not presently available to fund
domestic operations such as corporate expenditures or
acquisitions without paying a significant amount of
taxes upon their repatriation. We refer you to Item
303(a)(1) of Regulation S-K and Section IV of SEC
Release 33-8350.
Of the companies studied in our analysis, 89 percent
disclosed a permanent reinvestment assertion with
respect to all or part of undistributed foreign earnings.
Of those, 23 percent quantified the potential deferred
tax liability upon repatriation, 46 percent stated it was
impracticable to do so, with the remainder being silent.
While companies are required under GAAP to either
disclose the potential deferred tax liability upon
repatriation or state it is impracticable to do so, those
not disclosing may have considered the materiality of
such potential amounts in determining that no
disclosure is necessary.
A significant majority of the companies studied (80
percent) that asserted permanent reinvestment disclosed
their cash balances held overseas.
23%
20%
20%
27%
46%
60%
24%
53%
33%
20%
56%
23%
Total
Software & Internet
Semiconductors
Figure 9. Of registrants asserting indefinite
reinvestment, % disclosing tax impact
Quantified Not practicable Not disclosed
80%
80%
88%
73%
20%
20%
12%
27%
Total
Software & Internet
Semiconductors
Figure 10. Of registrants asserting indefinite
reinvestment, % disclosing the amount of cash
held domestically vs. internationally
Yes No

Critical accounting policies
Registrants are required to discuss their most critical
accounting policies and estimates, preparer judgments,
and risks and uncertainties within MD&A. Financial
Reporting Release No. 60 further clarifies the need for
more robust and transparent discussion of critical
accounting policies and the likelihood of materially
different reported results if different assumptions or
conditions were to occur. This differs from the
requirement for disclosure of accounting policies within
the notes to the financial statements, which is broader
and covers all relevant accounting policies. SEC staff
comments in this area have highlighted the need for a
full evaluation of the most critical accounting policies
and estimates in determining which disclosures should
be included in this section of the Form 10-K.
11. Please note that the accounting policy notes in the
financial statements should generally describe the
method you use to apply an accounting principle;
whereas the discussion in Management’s Discussion
and Analysis of Financial Condition and Results of
Operations should present your analysis of the
uncertainties involved in applying a principle at a
given time or the variability that is reasonably likely
to result from its application over time. In future
filings please include an analysis, to the extent
material, of factors such as how you arrived at critical
estimates, how accurate the estimate/assumption has
been in the past, how much the estimate/assumption
has changed in the past, and whether the
estimate/assumption is reasonably likely to change in
the future. In addition, your disclosure should
address sensitivity of the estimate/assumption to
change based on other outcomes that are reasonably
likely to occur and would have a material effect.
Please refer to the Commission Guidance Regarding
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Release No 34-
48960. In your response, please show us what your
revised disclosures will look like
12. Please tell us your consideration for including your
policy of assessing impairment of goodwill in your
critical accounting policy and estimates discussion as
it appears to contain significant judgments and
assumptions that are uncertain given the trends in
your results from operations and the potential impact
an impairment could have on your net loss.
Given the aforementioned requirements, registrants
often have fewer critical accounting policies disclosed
in the MD&A than in the notes to the financial
statements. The table below shows that the number of
critical accounting policies and estimates disclosed by
the technology companies studied ranged from 3 to 16,
with an average of 6.
The top five critical accounting policies disclosed by
registrants in our study were:
• Revenue recognition—including discussion of
multiple-element arrangements, distributor sales,
and deferred revenue;
• Income taxes—mainly focused on deferred tax asset
valuation allowances and uncertain tax positions;
• Goodwill and intangible assets—primarily
covering the impairment testing methodology and the
key assumptions used;
• Stock-based compensation—mostly discussing
the judgments involved in determining the key inputs
into the stock-option valuation model; and
• Inventory—exclusively centered on the valuation of
inventory and the process for estimating excess and
obsolete inventory. As expected, the only significant
variance noted among subsectors was the absence of
inventory from the software & internet subsector.
3
15
10
29
13
9
6
1 2 1 1
0
5
10
15
20
25
30
3 4 5 6 7 8 9 10 11 13 16
Numberofregistrants
Number of critical accounting policies disclosed
Figure 11. Number of critical accounting
policies disclosed
25
27
36
39
40
47
55
63
82
84
0 20 40 60 80
Business combinations
Fair value and fin. instruments
Long-lived assets
AR and allowances
Contingencies and warranties
Inventory
Stock-based compensation
Goodwill and intangible assets
Income taxes
Revenue and deferred revenue
Number of registrants
Figure 12. Top 10 critical accounting policies
disclosed

Non-GAAP measures
Companies often supplement their GAAP financial
reporting with non-GAAP information that is intended
to provide additional insight into the financial
performance of the business. A non-GAAP financial
measure is a numerical measure that adjusts the most
directly comparable measure determined in
accordance with GAAP. Such measures provide
supplemental information regarding a company’s
historical or future financial position, performance,
cash flows, or liquidity. They generally convey changes
to the business that are organic and separate from
those that may be considered unusual, infrequent, or
not representative of underlying trends. Common non-
GAAP financial measures in the technology industry
include earnings before interest, taxes, depreciation
and amortization (EBITDA), adjusted EBITDA, free
cash flow, adjusted earnings, and adjusted earnings per
share.
A company has flexibility as to which non-GAAP
financial measures it chooses to report, if any, and how
it calculates such metrics, subject to certain
prohibitions. Therefore, a limitation inherent in non-
GAAP financial measures is that they are subjective
and may not be comparable to similarly titled non-
GAAP financial measures used by other companies,
including peers. With the adoption of the new
discontinued operations accounting standard, fewer
disposals are expected to meet the criteria for
discontinued operations. Registrants may seek to
utilize non-GAAP measures to present adjusted results
excluding the disposed business.
When non-GAAP financial information is presented
in periodic reports filed with the SEC, registrants are
required to include:
• the reasons why management believes that the non-
GAAP measure is relevant to investors;
• the additional purposes, if any, for which
management uses the non-GAAP measure;
• the most directly comparable GAAP financial
measure with equal or greater prominence to
facilitate comparability among other registrants;
and
• a reconciliation to the comparable GAAP measure.
In addition, Item 10(e) of Regulation S-K prohibits
adjusting a non-GAAP financial performance measure
to eliminate or smooth items identified as non-
recurring, infrequent or unusual, when the nature of
such charge or gain is such that it is reasonably likely to
recur within two years or there was a similar charge or
gain within the preceding two years.
Below are some of the circumstances that generated
comment letters reviewed in our analysis:
• use of terminology that implies a non-GAAP
measure is a standard measure, e.g., a measure
that includes adjustments to the standard
definition of EBITDA should not be labeled
"EBITDA";
• omission of required non-GAAP disclosures due
to inappropriate conclusion that a financial
measure is not a non-GAAP measure;
• excluding charges or liabilities that require cash
settlement from non-GAAP liquidity measures;
and
• giving greater prominence to non-GAAP results
over GAAP results.
13. We refer to your discussion and presentation of
segment operating profit throughout your MD&A. In
this regard, please revise your disclosure to provide a
reconciliation of this measure to the most directly
comparable GAAP financial measure of operating
performance. Refer to Item 10(e)(1)(i) of Regulation
S-K. In addition, since this measure is not the
measure of profit disclosed in the segment note, it
does not appear appropriate to label this measure as
segment operating profit.
14. We note the non-GAAP adjustment for "income tax
effect of non-GAAP adjustments." Please tell us what
consideration was given to disclosing how this
adjustment was calculated. Refer to Compliance and
Disclosure Interpretation Question 102.11 for
guidance.
15. Reference is made to your disclosure of expected
Non-GAAP Net Income and Non- GAAP Earnings
per Share for fiscal 2015. In future filings please
provide a quantitative reconciliation, to the extent
available without unreasonable efforts, of the
differences between the non-GAAP financial
measures with the most directly comparable
financial measures calculated in accordance with
GAAP. Please refer to Item 10(e)(1)(i)(B) of
Regulation S-K.
16. In your adjusted EBITDA, adjusted cash earnings
and adjusted cash earnings per share measures you
add back merger and acquisition expenses and label
them as non-recurring. It appears the nature of
merger and acquisition expenses are not non-
recurring as you have completed other acquisitions
within the past two years. Please confirm to us that
you will not refer to these items as non-recurring in
future filings or explain to us why such a description
is appropriate. We refer you to Item 10(e)(1)(ii)(B) of
Regulation S-K and Question 102.03, in the Non-
GAAP Financial Measures section of our Compliance
and Disclosure Interpretations.

For the technology companies studied, our study
indicated that 89 percent of companies disclosed non-
GAAP measures in their earnings releases, while 46
percent of those companies also disclosed non-GAAP
measures in their Form 10-K filings. An analysis of
non-GAAP measures by subsector revealed that
Software & Internet companies have a higher
propensity to report non-GAAP measures in their Form
10-K filings with 63 percent, compared to 40 percent of
Computers & Networking companies and just 33
percent of Semiconductor companies.
The results of our study also found that, even when
registrants disclose non-GAAP measures in their Form
10-K filings, they typically include more non-GAAP
measures in their earnings releases (average of
approximately four as compared to one).
The most commonly reported non-GAAP measures include
non-GAAP earnings per share, net income, operating
income, and gross profit, adjusted EBITDA, and free cash
flow. This was consistent across all subsectors included in
the study.100% 93%
73%
89%
7%
27%
11%
Software & Internet Computers &
Networking
Semiconductors Total
Figure 13. % of registrants disclosing non-
GAAP measures in earnings release
Yes No
63%
40% 33% 46%
37%
60% 67% 54%
Networking
Figure 14. % of registrants disclosing non-
GAAP measures in Form 10-K
Yes No
4.3
3.7
3.2
3.7
1.9
0.9 0.8
1.2
Networking
Figure 15. Average number of non-GAAP
measures
Earnings release Form 10-K
28 25 22
7
15 12 10
3 4
25
23
14
8
11
5 8
4 4
19
18
13
15
4
7 5
2 1
Numberofregistrants
Figure 16. Most common types of non-GAAP measures
disclosed
Software & Internet Computers & Networking Semiconductors

When developing non-GAAP measures, the technology companies in our study most frequently excluded the
following items from their GAAP operating results: share-based compensation expense, amortization of acquired
intangible assets, restructuring charges, and acquisition, integration, and divestiture related costs.
27
23
12
16
15
9
5
7
19
19
12
9
11
7
6
7
16
14
14
12
4
5
8
5
0 10 20 30 40 50 60
Share-based compensation expense
Amortization of acquired intangible assets
Restructuring charges
Acquisition, integration and divestiture-related costs
Capital expenditures
Acquisition-related adjustments (fair value of
inventory, deferred revenue, contingent consideration)
Goodwill, intangible and other impairment losses
Legal expenses, settlement gains/losses
Number of registrants
Figure 17. Top non-GAAP adjustments
Software & Internet Computers & Networking Semiconductors

Compensation
Accounting and disclosures for
compensation arrangements require
significant judgment related to key
inputs and assumptions.
The accounting guidance for stock-based compensation
requires detailed disclosures of the methodologies used to
determine the assumptions underlying option pricing
models used to estimate the fair value of share-based
compensation awards, which in turn drives significant
expense charges in the income statement. While the
guidance on stock-based compensation disclosures
has not changed, it remains a challenging area for
registrants.
The accounting guidance provides for certain
accommodations in those circumstances where a company
does not have sufficient reliable historical data of its own. As
an example, to estimate the expected term for “plain vanilla”
options, management can use a simplified approach, which
takes the mid-point between the vesting date and contractual
expiration date in lieu of the actual experience of the
company with its own employees exercising stock options.
Also, a newly-public company typically does not have
sufficient company-specific historical data about the
volatility of its own stock price. In that case, management is
allowed to use the volatility of a peer group instead. These
accommodations are expected to be used for a limited time.
After accumulating sufficient historical experience, a
company should not rely solely on peer information for the
volatility assumption or use the simplified method for the
expected term assumption. While there is no bright line as to
what constitutes sufficient company-specific historical
experience, based on comments issued by the SEC staff to
registrants, that period should generally not exceed three
years.
1. Please tell us your consideration of disclosing the
methods used to determine the dividend yield; risk-
free interest rate; expected option life; expected
volatility and suboptimal exercise multiple for each
period presented. We refer you to ASC 718-10-50-
2(f).
2. We note your disclosure that you use the simplified
method to estimate the expected term of your stock
options. Considering the extent of the exercise
activity since your initial public offering, please
explain why you continue to believe that it is
appropriate to use the simplified method rather than
using historical information. Also, tell us when
management expects that sufficient historical
information will be available. Refer to Question 6 of
SAB Topic 14.D.
Item 402 of Regulation S-K requires extensive
disclosures related to executive compensation in proxy
statements, Form 10-K filings, and registration
statements, the objective of which is to provide users of
financial statements with robust and transparent
information. Comment letters issued by the SEC staff in
the past year have focused on how registrants determine
amounts awarded to executive officers. While some
registrants disclose the data points used, such as peer
group or salary survey data, the SEC staff has criticized
registrants for generic disclosures in this area. In many
cases, comment letters have requested that registrants
explain how specific awards to each executive officer
were determined.
3. Although you discuss what you generally considered
in determining the amount of equity incentives, you
have not discussed the specific considerations that led
to the actual amounts awarded. For example, you do
not appear to explain why Messrs. X and Y received
more equity incentives than Mr. Z. Please address this
in future filings, to the extent applicable. See Item
402(b) of Regulation S-K.
Comment letters issued by the SEC staff have also
required that registrants disclose the specific performance
targets and thresholds that employees need toachieve in
order to earn their compensation awards. Some
registrants have claimed “competitive harm” if such
disclosures are made; however, the SEC staff remains
skeptical, especially when such information is based on
actual company results and the performance target is
disclosed after the fiscal year has ended.
4. We note your disclosure that you elected not to
disclose your performance targets because such
information involves confidential financial
information, the disclosure of which would result in
competitive harm to you. Please provide us with a
detailed explanation supporting this conclusion. See,
for guidance, Instruction 4 to Item 402(b) of
Regulation S-K, and Question 118.04 of the
Regulation S-K Compliance and Disclosure
Interpretations. In addition, in future filings, to the
extent that it is appropriate to omit specific goals and
metrics, please provide appropriate disclosure
pursuant to Instruction 4 to Item 402(b) of
Regulation S-K. In discussing how difficult or likely it
will be to achieve the levels, you should provide as
much detail as necessary without disclosing
information that poses a reasonable risk of
competitive harm.

Impairments
The SEC staff continues to issue comments
on registrants’ disclosures of critical
accounting estimates related to goodwill,
indefinite-lived intangible assets, and long-
lived asset impairments.
Goodwill and indefinite-lived intangible assets
SEC staff comments during 2015 have requested details
surrounding a company’s quantitative impairment tests
and the related assumptions. For reporting units whose
fair values are not substantially in excess of their
carrying amounts (“at risk” reporting units), the SEC
staff has asked registrants to disclose additional
quantitative and qualitative information consistent
with the guidance outlined in the Division of Corporate
Finance Financial Reporting Manual Section 9510.3.
Some registrants also received comments from the
SEC staff when no impairment charge was recorded
during the annual assessment, but other publicly
available data indicated the presence of a negative
trend that could impact the impairment assessment.
1. Please provide us with a more thorough description of
the assumptions used in your DCF valuation for the X
and Y reporting units. Include the carrying values of the
reporting units, the source of assumptions specific to
each unit, and whether the assumptions and
methodology used for valuing goodwill in the current
period have changed from the testing performed in
20X3. Identify the impact of any changes and describe
the reasons for such changes. For example, specifically
tell us the long-term growth rates and risk-adjusted
discount rates used for each of these reporting units
and how you derived those rates for your testing in
20X4 and 20X3. Explain the reasons for any changes
between the dates. Tell us about the projected cash
flows used in your valuations and how these cash flows
compare to other internal forecasts and budgets of the
company, historical cash flows for the reporting units,
and actual cash flows since that time.
2. We note your disclosure that there have been no
significant events or circumstances that may have
impacted the valuation of goodwill subsequent to the
assessment performed on October 1, 20X3. Please tell
us how you considered the following when making this
determination: There has been a significant decline in
your market capitalization as a result of the decline in
the fair value of your common stock. In this regard, we
note that your stock price was $X on October 1, 20X3
compared to $Y as of June 30, 20X4.
The decline in license and maintenance revenue as well
as the fact that you operated at a loss in the three and
six-months ended June 30, 2014. In this regard, we
note that we do not believe that 10% is substantially in
excess.

Impairments
Long-lived assets
The themes of the SEC staff comments related to
long-lived assets were consistent with those for
goodwill and other indefinite-lived intangible assets.
Additional information about the level of uncertainty
and sensitivity of key assumptions related to “at risk”
assets or asset groups has been a point of focus by
the SEC staff. In some instances, the SEC staff
requested details of the impairment analysis and
challenged registrants’ conclusions relative to how
registrants considered economic challenges,
operating losses at a specific segment, or the
impairment of similar assets as a potential trigger
event.
3. We note that you recognized an impairment in 20X3.
Please respond to the following: For each category of
fixed asset impaired, tell us the carrying amount prior
to recognition of the impairment loss and the
impairment amount. Tell us how you applied FASB
ASC 360-10-35 in determining the amount of the
impairment loss. If the assets were fully impaired,
please tell us why.
4. Please tell us and disclose the facts and circumstances
leading to the abandonment of certain products and
the method used for determining fair value of the
impaired assets. In addition, please tell us and
disclose the segment(s) in which the remaining
impairment charges are reported. Please refer to ASC
360-10-50-2.

Income tax
While valuation allowance conclusions and
indefinite reinvestment disclosures remain a
focus, the effective tax rate is emerging as an
area of emphasis of SEC staff comments.
Income tax related disclosures and analysis continue to be
an area of focus for the SEC staff. In particular, comments
have requested that registrants expand their discussion of
significant fluctuations and transactions and provide
additional insight into material factors affecting trends.
The SEC staff has also focused on enhancing registrants’
disclosures relating to the effective tax rate reconciliation
and management’s conclusion over the need for a
valuation allowance.
Effective tax rate reconciliation: Recent comments from
the SEC staff have inquired about the nature of certain line
items in the effective tax rate reconciliation and their
consistency with information disclosed elsewhere in the
registrant’s filing. When there was a substantial difference
between the effective tax rate and statutory rate, the SEC
staff has asked registrants to enhance their disclosures and
discussion of the trends and variability of material
components within the reconciliation.
1. We see that the effect of foreign operations taxed at
various rates significantly impacted the reconciliation
between the statutory U.S. federal income tax rates to the
actual effective income tax rate for fiscal 20X3. As
required by FASB ASC 740-10-50-14, please revise future
filings to disclose the nature and effect of significant
matters affecting comparability of information for all
periods presented. In this regard, please disclose the
identities of specific jurisdictions that materially affect the
effective tax rate, their tax rates, and information about
the effects on such foreign jurisdictions on the effective tax
rate.
2. Please provide us with a breakdown of the components
included in the line items: tax credits, tax reserve for
uncertain tax positions, and the change in earnings mix
included in your effective tax rate reconciliation for the
fiscal year ended December 31, 20X3. As part of your
response, tell us what consideration you gave to providing
further quantitative breakdown of these line-items. We
refer you to Rule 4-08(h) (2) of Regulation S-X. In this
regard, tell us whether any other items are included in
these line items.
Valuation allowances: The SEC staff continued to
scrutinize registrants’ assessments of the recoverability of
deferred tax assets, the assessment of which involves
significant judgment. In comment letters, the SEC staff
asked registrants to explain the nature and weight of the
positive and negative evidence considered in their
assessment. The SEC staff has further requested that
registrants discuss whether the assumptions and future
trends considered in this assessment are consistent with
the assumptions used in other assessments, such as those
prepared to evaluate goodwill or intangible or tangible
asset impairments.
3. We note that as of December 28, 20X3, you concluded
that "it was more-likely-than-not that the amount of
deferred tax assets recorded on the balance sheet would be
realized." We further note that over the last three fiscal
years, you have incurred a cumulative loss before income
tax (benefit) provision. In light of such cumulative loss,
please provide us with your basis for your conclusion that
a valuation allowance is not needed. Refer to ASC 740-10-
30-23.
4. We note that you have a history of losses and have not
recognized a valuation allowance for deferred tax assets,
and in particular, deferred tax assets related to capital and
net operating losses. Please tell us the evidence, both
positive and negative, you considered to determine
whether, based on the weight of the evidence, a valuation
allowance for deferred tax assets is needed. Please include
a discussion of the possible sources of taxable income that
may be available to realize the tax benefits for the
deductible temporary differences and carryforwards,
including reversal of existing taxable temporary
differences, future taxable income exclusive of reversing
temporary differences, and tax planning strategies. Please
be sure to explain how you support a conclusion that a
valuation allowance is not needed given the cumulative
loss in recent years. Please refer to ASC 740-10-30-16
through 25.
Indefinite reinvestment assertion: If a registrant
determines that its investment in a foreign subsidiary is
essentially permanent in nature (i.e., asserts its earnings
will be indefinitely reinvested outside of the US), it does
not have to record a deferred income tax liability for any
related basis differences. In addition to disclosure in the
MD&A regarding the impact of indefinite reinvestment
assertions on liquidity, the SEC staff reminded registrants
that when an indefinite reinvestment assertion is made,
ASC 740-30-50 requires disclosure of the amount of the
unrecognized deferred tax liability on undistributed
earnings of foreign subsidiaries or a statement that such
determination is not practicable.
5. You indicate that you intend to permanently reinvest the
undistributed earnings from other foreign subsidiaries.
Tell us what consideration was given to disclosing the
accumulated amount of undistributed foreign earnings of
these subsidiaries. Refer to ASC 740-30-50-2(b). Provide
us with any proposed revisions to your disclosure in future
filings.
Sample comments regarding MD&A disclosure of the
impact of indefinite reinvestment assertions can be found
on Page 19.

Loss contingencies
To keep investors apprised of material
developments associated with the nature,
timing, and amount of a loss contingency,
such details should generally not be
disclosed for the first time in the period in
which a liability is recorded.
The disclosure requirements of ASC 450, Contingencies
continue to be a challenging area for registrants and a
focus of the SEC staff. Under the guidance, companies
should record an accrual for a loss contingency when it is
probable that a loss has been incurred and the amount of
the loss can be reasonably estimated. In instances where
the criteria for accrual have not been met, disclosure may
be required if the loss is reasonably possible.
For loss contingencies that meet the criteria for
disclosure, registrants should include a description of the
nature of the contingency and an estimate of the possible
loss or range of loss (or a statement that such an estimate
cannot be made). To alleviate registrants’ concerns that
disclosure of such information may impact the outcome
of litigation, the SEC staff has accepted disclosure of
estimated exposure on an aggregated basis, rather than
requiring separate disclosure for each individual matter.
In certain situations, when a registrant discloses that an
estimate of the possible loss or range of loss cannot be
made, the SEC staff has questioned the procedures
undertaken to develop the estimate or range and the
factors leading to the inability to develop such estimates.
Disclosure of the nature, timing, and amount of a loss
contingency should generally not be disclosed for the first
time in the period in which the loss is recorded. The SEC
staff has frequently evaluated the disclosures in periods
prior to the period in which a loss is recorded and
commented on a lack of adequate “early-warning” or
foreshadowing disclosures. Such comments often request
additional information to understand the triggering event
for recording the loss and whether such losses should
have been recorded in an earlier period. The SEC staff
expects that loss contingency disclosures will be updated
regularly, both qualitatively and quantitatively, for
developments in the related matters and as more
information becomes available.
1. Please tell us how you have complied with the disclosure
requirement in ASC 450-20-50-4 to either disclose an
estimate of the possible loss or range of loss in excess of
amounts accrued, or provide a statement that such an
estimate cannot be made.
2. We note the discussions relating to the lawsuits filed in
January 20X5 but note that you did not provide all the
disclosures required by FASB ASC 450-20-50, including
management's conclusion or inability to conclude on the
probability of loss and any related accrual. Please confirm
that you will comply fully with the guidance in future filings.
Please provide us with your proposed revised disclosure.
3. You disclose that in management's opinion claims not
disclosed involve amounts that would not have a material
adverse effect on your consolidated financial position if
unfavorably resolved. Please also disclose in future filings
the expected impact on your cash flows and results of
operations.
4. For a number of your legal proceedings disclosed in Item 3,
you disclose the claims are without merit and/or you plan to
vigorously defend them. If there is at least a reasonable
possibility that a loss exceeding amounts already recognized
may have been incurred, in your next periodic filing, please
either disclose an estimate (or, if true, state that the estimate
is immaterial in lieu of providing quantified amounts) of the
additional loss or range of loss, or state that such an estimate
cannot be made. Please refer to ASC 450-20-50.
If you conclude that you cannot estimate the reasonably
possible additional loss or range of loss, please tell us: (1)
explain to us the procedures you undertake on a quarterly
basis to attempt to develop a range of reasonably possible
loss for disclosure and (2) for each material matter, what
specific factors are causing the inability to estimate and
when you expect those factors to be alleviated. We recognize
that there are a number of uncertainties and potential
outcomes associated with loss contingencies. Nonetheless,
an effort should be made to develop estimates for purposes
of disclosure, including determining which of the potential
outcomes are reasonably possible and what the reasonably
possible range of losses would be for those reasonably
possible outcomes.
You may provide your disclosures on an aggregated basis.
Please include your proposed disclosures in your response.

Segments
The purpose of segment disclosures is to
provide investors the ability to see the
company through the eyes of
management.
Recent remarks by the SEC staff highlight the
continued importance of accurate segment disclosures
in public filings. Historically an area of focus for the
SEC staff, segment reporting gained further
prominence as a result of observations made by an SEC
staff member at the 2014 AICPA National Conference
on Current SEC and PCAOB Developments.
Specifically, the staff announced its plans to refresh its
approach to reviewing segment disclosures. In addition
to the areas of focus indicated in last year’s comment
letters, registrants should be prepared for the
possibility of new trends emerging in the near future
based on the staff’s reconsideration of segment
disclosures. Future comment letters might challenge:
 The identification of the Chief Operating Decision
Maker (“CODM”) or
 Relying too heavily on the CODM reporting
package to identify operating segments (i.e.,
registrants should also consider the basis on which
budgets and forecasts are prepared, the basis on
which executive compensation is determined, and
the overall organizational/management structure).
1. We note that you operate and account for your
results in one reportable segment, the design,
development, manufacture, and market of high
performance semiconductor products. Please tell us
how you considered the guidance in FASB ASC 280-
10-50-1 through 9. In this regard, we note that you
have five major focused product groups, each of
which has a Senior Vice President and General
Manager that oversees its operations and may be
considered a segment manager. Please clarify why
these product groups do not represent segments or
aggregated segments under FASB ASC 280.
Currently, the most frequent SEC staff comments
on segments relate to the proper identification of
operating segments and the aggregation of
operating segments into reportable segments. The
SEC staff routinely requests documentation
supporting the registrant’s identification of
operating segments. Registrants are often asked to
provide copies of the CODM reporting package to
allow the SEC staff to consider whether the
information is consistent with the registrant’s
identification of its segments. This is particularly
important for companies asserting that they operate
as a single segment. However, as noted above, the
staff has recently indicated that the CODM package
should not be the only information considered when
identifying operating segments. Registrants should
understand that the staff continues to review
publicly available information, such as earnings
calls, press releases, investor presentations, and
registrant websites, to ensure a company’s
description and organization is aligned across all
public information.
2. We note your disclosure that the company operates
as three segments which are sufficiently similar and
aggregated. We further note that you identified two
operating segments in your Form 10-K for the fiscal
year ended December 31, 20X3. Please tell us what
your operating segments are and provide us with
your analysis of how you concluded that aggregation
is appropriate under ASC 280-10-50-11, including an
analysis such as gross margins and sales trends,
supporting the conclusion that the operating
segments are expected to have similar long-term
economic characteristics.
3. We note that you have not presented segment
information for your vertical-based business units as
you do not have discrete financial information.
However, we note that in your earnings call
transcript for Q4 20X3 results your CEO indicates
that the new structure empowers verticals, making
them responsible for their respective P&Ls. Please
explain why you do not have discrete financial
information for your vertical-based business units
considering that you appear to have business unit
P&Ls. See ASC 280-10-50-1 and ASC 280-10-50-10.
Depending on how the CODM assesses operating
performance and allocates resources, the basis of
segmentation used by registrants may vary, for
example, based on geography, line of business, product
or service type, or a combination thereof. In our
benchmarking study, we noted than 57 percent of
registrants disclosed operating as a single segment. Of
those registrants reporting more than one segment,
over half (59 percent) determined their segments based
on different product or service types, 18 percent based
them on lines of business, and another 18 percent on
geography. There were no meaningful differences in this
distribution by subsector with the exception of
semiconductors, where segmentation was even more
heavily weighted towards product type at 79 percent.
Products &
Services
59%
Line of
Business
18%
Geography
18%
Combination 5%
Figure 18. Basis of segmentation

Segments
The SEC staff routinely issues comments related to a
registrant’s conclusion that its operating segments
satisfy the “economic similarities” criterion for
purposes of aggregation. Information such as analyst
presentations and public filings are often used by the
staff when considering the appropriateness of
aggregation. Comment letters frequently request
additional information from registrants, such as
historical and projected gross and operating margins,
to support the assertion that aggregated operating
segments exhibit similar long-term financial
performance. In addition, demonstrating similar
long-term performance is not in and of itself sufficient
to support the appropriateness of aggregation. All of
the qualitative criteria outlined in ASC 280 should be
considered, including (1) the nature of a registrant’s
products and services and (2) the type or class of
customer for those services. Registrants are reminded
that the aggregation criteria are meant to set a high
hurdle to overcome.
4. We note your disclosure of revenue by type of
product or service in accordance with ASC 280-10-
50-40. It appears that your display advertising, click
and call advertising, and lead generation advertising
revenue streams have distinct natures and risks; as
such, it does not appear that these services are
similar enough to be aggregated into a single group.
Please further disaggregate your online revenue
category, and show us how this disclosure would
have appeared in this Form 10-K.
5. Please address the following:
• Please provide us with a clear description of the
nature of the products for each of your major product
lines. In this regard, please also describe any major
similarities and differences among the product lines.
• You state that many of the products are based on
the same underlying technology, and that serves as
part of your basis for concluding they are similar
products. Please explain to us in the nature of
customization or enhancements that is done to the
base underlying technology in order to create the
product lines that you reference.
• We note that you serve four diverse target markets.
Please explain to us how each of your product lines
serves each target market. Given the diversity of your
end markets, please explain to us why you believe the
products serving those end markets are substantially
similar.
• To the extent available, please provide us with
revenue and gross profit by product line for your last
two fiscal years. Within your analysis, please address
any significant differences between revenue growth
rates and gross margin percentages for each of your
product lines.
Based on comments made at the 2014 AICPA
Conference, the SEC staff believes entity-wide
disclosures are often overlooked in company filings.
These disclosures are required even for registrants
organized in a single reportable segment. As the staff
continues to highlight the importance of these
disclosures, registrants may receive comments if they
have omitted the disclosure of revenue by product or
service, by groups of similar products or services, or by
geography. These questions are usually based on the
way management describes the registrant’s business or
discusses the results of operations in MD&A. The SEC
staff frequently challenges registrants who assert that
providing such disclosures is impracticable, especially
in filings in which the description of the company’s
business outside of the financial statements (e.g.,
within MD&A) includes quantification and discussion
of different revenue categories. It is worth noting that
the entity-wide disclosure of revenue by product may
differ from how revenue is presented in segments
organized by product.
6. We note you derive a significant portion of your
revenue from your international business and
disclose plans to expand your operations in Europe,
Asia, Latin America, and other geographic regions.
Please tell us how you considered ASC 280-10-50-41
in determining no individual foreign country
represents a material source of revenue.
While there is a requirement to disclose revenue by
geography, there is no prescribed basis in GAAP
for the geographical attribution of such revenues
from external customers to individual countries.
Our study found that 74 percent of companies
attributed revenues based on customer location.
Some companies were more specific about defining
the customer’s location as a “bill to” location or a
“ship to” location. In addition, 8 percent of
companies attributed revenue by sales origin,
which is sometimes referred to as the “bill from”
location.
Customer
location
28%
Ship to
location
19%
Bill to
location
27%
Sales
location
8%
Other or
not
disclosed
18%
Figure 19. Basis for geographical
attribution of revenues

Business combinations,variable interest
entities, and divestitures
As technology companies continue to seek
growth and transformation opportunities
through acquisitions and divestitures, the
SEC staff continues to comment on key
accounting and disclosure items in this area.
Mergers and acquisitions deal activity has escalated over
the years and, as a result, the SEC staff continues to
comment on various aspects of acquisition accounting
and disclosure. Acquisition-related accounting and
disclosure requirements can be complex and will likely
vary based on the structure of the transaction and the
nature of the assets acquired and liabilities assumed.
ASC 805, Business Combinations, requires extensive
disclosures to enable users to evaluate the nature and
financial effects of a business combination. Companies
should carefully consider the applicable disclosure
requirements, both in the period of the acquisition and in
subsequent periods.
Business combinations: For companies in the
Technology industry, the SEC staff comments have
focused on:
 purchase price allocations, including questions about
how fair value was determined and the key
assumptions used;
 the reasons for significant adjustments to the initial
purchase price allocation and why such information
was not available at an earlier date;
 additional information about the qualitative factors
that resulted in significant goodwill;
 how goodwill was allocated to reporting units and the
interplay with the company’s operating segments
disclosures; and
 how the company evaluated whether the transaction
was the purchase of assets or a business.
The SEC staff has also questioned the omission of the
proforma financial information required by ASC 805-10-
50-2, as well as the omission of disclosures of actual
revenue and earnings since the acquisition date, as
required by ASC 805-10-50-2.
1. You disclose that you did not disclose the amounts of
revenue and earnings of the Microphone Product Line
from the acquisition date included in the consolidated
statements of operations because the impact was not
material. Given the impact of the acquisition, as reflected
in your pro forma information, please tell us the amounts
of revenue and earnings of the X Product Line from the
acquisition date to March 30, 20X4 and discuss your
conclusions that the amounts are not material. Refer to
FASB ASC 805-10-50-2(h).
2. Please explain in further detail how you concluded that
the patents acquired, including the licenses to access
patents, and technology do not qualify for recognition as
separate assets pursuant to the guidance in ASC 805. In
particular, provide us with your analysis to explain how
you considered the contractual/legal and separability
criterion, including the guidance in ASC 805-20-55-2(c).
3. Please tell us if you anticipate future research and
development that may utilize any of the acquired patented
technology. If so, explain to us the consideration you gave
to this possibility when estimating the useful life of the
acquired patents.
4. Please tell us how you determined the useful lives of the
existing airport and customer contracts and relationships
for the X and Y acquisitions, respectively.

Business combinations, variable interest entities, and divestitures
Variable Interest Entities (VIEs): Accounting guidance
requires that a reporting entity consolidate any entity in
which it has a controlling financial interest. A variable
interest is an investment or another interest that will
absorb portions of a VIE’s expected losses or receive
portions of the entity’s expected residual returns. The
identification of variable interests represents one of the
more challenging aspects of the VIE model. A VIE is
required to be consolidated by the primary beneficiary,
which is the party that has the power to direct the entity’s
most significant economic activities and the obligation to
absorb losses or the right to receive benefits that could
potentially be significant to the entity. This party could
be an equity investor, some other capital provider, or a
party with certain rights pursuant to a contractual
arrangement. In the Technology industry, there
continues to be significant focus on VIE structures in
China and, specifically, the enforceability of the
contractual terms in light of existing local government
regulations, management actions that demonstrate that
the contractual terms are being adhered to, country laws
that can affect the operations, and related parties in the
structure.
The VIE model requires that both the primary
beneficiary of a VIE and a reporting entity with a
variable interest in a VIE disclose certain information
about their involvement with a variable interest entity.
These extensive disclosures are intended to enable users
to evaluate the nature and financial effects of VIEs.
Accordingly, it is important that companies develop,
monitor, and maintain systems, processes, and internal
controls to ensure compliance with these requirements
in a timely and complete manner.
The SEC staff comments have requested registrants to:
• enhance disclosure of the types of structures in which
the company participates and the accounting policy
and determination of which entities are consolidated
and which ones are not;
• describe the methodology used in evaluating whether
the company is the primary beneficiary of a VIE,
including a description of the significant judgments
and assumptions made;
• describe the qualitative factors considered and also
provide the quantitative analysis used, if any, to
determine whether the rights to receive benefits
could potentially be significant;and
• disclose the primary factors that cause a change in
the conclusion about consolidating a VIE and the
effect on the financial statements.
5. We note your disclosures here and throughout the filing
that you account for the 51% investment in X and Y under
the equity method of accounting. We further note your
disclosures of the substantive participating rights that the
no controlling shareholder holds. Please tell us more
about these rights as well as the rights that you hold by
virtue of your effective 51% investment. Explain in greater
detail why you determined that it should not be
consolidated based upon the guidance in FASB ASC Topic
810.
Divestitures: With new accounting guidance in place
with respect to the definition of, and disclosure
requirements for, discontinued operations, companies
are required to evaluate accounting for disposals under a
new model. Discontinued operations are now limited to
disposals of components that represent a strategic shift
that has (or will have) a major effect on an entity’s
operations and financial results. In addition to
evaluating the accounting and disclosure requirements
for a disposal, companies should also consider the
requirement to file an Item 2.01 Form 8-K to disclose
that a significant disposition has occurred and the
related proforma effects of the disposal, based on the
significance tests set forth in Regulation S-X 1-02(w).
Prior to the new guidance going into effect for interim
and annual periods beginning January 1, 2015, in
instances where registrants had accounted for disposals
under the existing guidance, the SEC challenged
registrants about their conclusions that a divestiture met
the criteria for discontinued operations presentation,
and also the significance conclusions for the Form 8-K
reporting requirements. As they adopt the new guidance,
registrants should be mindful of the need to perform and
document a thorough analysis of the disposal and expect
that the SEC may inquire about the factors considered in
concluding whether a disposal represented a strategic
shift of the business.
6. We note your determination that the divestiture of the X
business did not qualify for discontinued operation due to
the significant continuing involvement of the Company in
the X business operations. Please tell us the nature of
your continuing involvement and why you deem it
significant. Refer to ASC 205-20-55-15.
7. We note from your press release that you sold your X
operation to Y, a business process outsourcing service
provider. Please tell us what consideration you gave to
ASC 205-20 and ASC 360-10-45-9 in determining
whether this business should be reflected as assets held
for sale and correspondingly discontinued operations. In
addition, please tell us why you were not required to file
an Item 2.01 Form 8-K for the disposition of these assets.

In addition to the areas highlighted so far, there were
several other notable trends in SEC comment letters.
Compliance
The SEC staff continues to raise numerous compliance-
related questions, including requests to file copies of
material agreements, inquiries about the determination
of a registrant’s filing status and eligibility to use certain
Securities Act forms, and inquiries about the content of
the auditors’ reports on financial statements.
Business section and risk factors
The SEC staff has increasingly requested that registrants
include specific information about their business in both
the Business and Risk Factors sections of filings. The
SEC staff has been critical of registrants who include
general discussions of the business and risk factors
applicable to the industry without specifically focusing
on the unique operations and business of the registrant.
Further, the SEC staff has also asked questions of
registrants in instances where there is a lack of
consistency among any significant business matters or
potential risk factors disclosed, and other sections of its
periodic filings or other publicly available information.
More specifically, in the Business section, the SEC staff
has posed questions to registrants regarding backlog
disclosures and has challenged registrants in instances
where backlog has not been disclosed.
1. Although we understand that the backlog amount does
not include overage fees as these amounts are not firm,
the disclosure of backlog and the amount of backlog not
reasonably expected to be filled within the current fiscal
year is a requirement per Item 101(C)(1)(viii) of
Regulation S-K. Please confirm that in future filings you
will provide this required disclosure.
2. We note that because you invoice your customers in a
variety of installments, your deferred revenue does not
represent the total contract value of your non-cancellable
subscription agreements. Please tell us what
consideration you gave to disclosing backlog as required
by Item 101(c)(1)(viii) of Regulation S-K.
Disclosure of operations in locations identified
as state sponsors of terrorism
There has continued to be a decline in SEC staff
comments regarding registrants’ business conducted
with state sponsors of terrorism (Syria, Cuba, Iran,
and Sudan). Nonetheless, the SEC staff continues to
ask registrants to disclose quantitative and qualitative
information about interactions with these countries
factors that a reasonable investor would regard as
important in making an investment decision. These
include the nature and extent of contact (directly or
indirectly), including the amount of revenues derived
and assets associated with each country (without any
materiality threshold), and a description of equipment
and technology that the company has provided to
these countries. The comments are often triggered by a
review of the company’s website, which may contain
references to one of the countries designated as state
sponsors of terrorism.
3. You state that customer X represented 63% of your total
revenue for 2013. X’s website provides contact
information for service and support centers for Sudan and
Syria. Additionally, we are aware of an article stating that
X’s products are popular in Cuba. Cuba, Sudan, and Syria
are designated by the Department of State as state
sponsors of terrorism, and are subject to U.S. economic
sanctions and export controls. Please describe to us the
nature and extent of your past, current, and anticipated
contacts with Cuba, Sudan and Syria, if any, whether
through subsidiaries, distributors, customers or other
direct or indirect arrangements. You should describe any
services, products, information, or technology you have
provided to Cuba, Sudan, or Syria, directly or indirectly,
and any agreements, commercial arrangements, or other
contacts you have had with the governments of those
countries or entities they control.
38%
6%
7%
18%
4%
10%
18%
17%
3%
7% 12%
8%
6%
46%
21%
12%
4%
11% 5% 5%
42%
Figure 20. Breakdown of other notable trends
by topic
2013 2014 2015

Investments and fair value measurements
Investments and fair value measurements comments
included requests to disclose the methods and key
assumptions used to determine fair values, transparent
disclosures with respect to credit quality of investments,
management’s consideration of temporary versus other-
than-temporary investment losses, and detailed
disclosures about unobservable fair value measurements
(Level 3), such as the reconciliation of beginning and
ending values for the period and the sensitivity of fair
values to changes in assumptions.
4. Your fair value disclosures indicate that you estimate the
fair values of other short-term receivables and payables
as well as prepayments and other assets, long-term
deferred revenues, and other long-term liabilities using
Level 3 valuation techniques. Please explain why the
amounts determined using Level 3 valuation techniques
are not presented within the fair value table. In this
regard, please consider revising future filings to include
the amounts determined using Level 3 measurements
techniques within the table. In addition, consider
providing a discussion of changes to your fair value
measurement techniques as well as the movement of
amounts from one Level to another, including the
reasons for such changes or movements. Please refer to
and tell us how you addressed the disclosure guidance in
ASC 820-10-50.
Of the companies studied, approximately 47 percent
disclosed one or more Level 3 valuations for either
recurring or non-recurring fair value measurements. The
most common type of recurring Level 3 fair value
measurements was for contingent consideration
liabilities, with 25 percent of companies disclosing a Level
3 fair value measurement for those types of instruments.
Level 3 fair value measurements for auction rate
securities and derivatives were also common, with 10
percent of companies reporting Level 3 fair value
measurements for each of these types. For non-recurring
fair value measurements, the most common type
disclosed were Level 3 fair value measurements for asset
impairments and assets held for sale, with 15 percent of
companies reporting such a measurement.
Other
Materiality: The SEC’s guidance on evaluating materiality
is included in SAB Topics 1.M and 1.N. Materiality should
be evaluated considering both quantitative and
qualitative factors. The quantitative analysis should
include the effects of the errors on each of the company’s
financial statements impacted (both annual and interim)
and related disclosures using both the iron curtain and roll-
over methods. However, registrants should not assume
that an error is not material simply because it falls below a
certain dollar or percentage threshold. A qualitative
analysis should also be performed to address
considerations such as whether the error impacts
management’s compensation, whether it was intentional or
the result of a fraudulent act and, if the error impacts
reported trends or analysts’ expectations. The materiality
analysis should be robust and balanced (reflecting both
positive and negative factors), and should be
contemporaneously documented, as the SEC staff often
asks registrants to provide their materiality analysis.
5. We see that you recorded out-of-period correcting
adjustments to write off certain manufacturing and
subcontractor costs that were capitalized within other
current assets in previous periods. We reference your
statement that the corrections resulted in an increase to
the Company's net loss of $X for the six months ended
June 29, 20X4. Given the company’s net income for the six
months ended June 29, 20X4 of $Y, please tell us how you
concluded that the amounts were not material, either
individually or in the aggregate, to any prior period and to
the 20X4 interim or expected full year financial
statements. Please provide us with your SAB No. 99
analysis in assessing the materiality of the error.
6. We note that during the second quarter of 20X3, you
identified an error related to prior year periods for
Brazilian indirect tax incentives and you determined that
the error is not material to each year presented. Please
provide us with a reasonably detailed SAB 99 analysis
encompassing each period affected by the error, including
quarterly periods, and tell us how you considered each of
the qualitative factors.
7. We note you reclassified certain costs that were previously
included in general and administrative expenses to cost of
revenue based on personnel or activities that were directly
related to supporting your customers. Please describe in
detail the nature of the activities performed by these
personnel and describe any other costs that were
reclassified to cost of sales that supports the classification
of these expenses as cost of revenue. As part of your
response, please tell us how you determined that this was a
reclassification rather than an error and refer to the
authoritative guidance you relied upon.

Disclosure Effectiveness
The SEC staff is in the midst of a broad, ongoing
project to evaluate the requirements of Regulation S-
K and certain provisions of Regulation S-X for all
registrants. This effort evolved out of a JOBS Act
requirement for the SEC staff to evaluate ways to
modernize and simplify the registration process and
reduce the costs and other burdens associated with
Regulation S-K requirements for issuers that are
emerging growth companies.
SEC Chair Mary Jo White has emphasized that
disclosure effectiveness continues to be an area of
focus for the SEC staff. Additionally, SEC
Commissioner Daniel M. Gallagher stated in a March
2015 speech, “I hope and expect that the Division of
Corporation Finance will come out with an aggressive
agenda for disclosure simplification.”
While the SEC staff has been clear that current
disclosure requirements are not broken, there
appears to be widespread support for identifying
targeted recommendations to minimize duplicative
and overlapping requirements, eliminating
disclosures that are not useful, and reducing the costs
and burdens of financial reporting to preparers.
Through this initiative, the SEC is looking for ways to
update and modernize its disclosure system while
continuing to provide material information. The SEC
staff has been clear that reducing disclosure is not the
objective of this important project, but they have
indicated that they believe the initiative can reduce
costs and burdens on companies. While the
disclosure effectiveness project may identify and
eliminate duplication or overlaps in disclosure
requirements, it may also identify gaps in information
that investors would find useful, in which case, it may
lead to additional disclosure requirements.
On September 25, 2015, the SEC published its first
request for comment from the disclosure effectiveness
initiative. The request for comment focuses on the
portions of Regulation S-X that address financial
information of entities other than the registrant (e.g.,
acquired businesses, equity method investees,
guarantors). The application of these rules can be
complex, and many consider it to be disproportionately
burdensome to smaller registrants since they are more
likely to trigger the quantitative thresholds in these
rules. The project may serve as an opportunity to
further scale disclosure requirements for the various
classes of registrants. The SEC is soliciting input on
how this financial information is used by investors and
what changes would facilitate the disclosure of the most
useful information.
In advance of formal rule making, registrants can still
take action to make disclosures more effective and
streamlined by:
 Reducing repetition – Registrants should think
before repeating something. For example, MD&A
should not simply repeat information, such as
critical accounting policies, provided elsewhere.
Greater use of hyperlinks and cross referencing
where applicable and appropriate can also decrease
unnecessary duplication.
 Eliminating outdated information – Disclosures
should evolve over time. Companies should
regularly evaluate their disclosure to determine
whether they are material to investors.
 Avoiding boilerplate language – Disclosures
should be tailored for the entity. For example, risk
factors should be less generic and explain how
these items would affect the company if they came
to pass.

SEC comment letter process
The SEC’s Division of Corporation Finance (CorpFin)
has a long history of reviewing selected filings made
under the Securities Act of 1933 and the Securities
Exchange Act of 1934. The intent of the review is to
monitor and enhance compliance with applicable
disclosure and accounting requirements.
Until Sarbanes-Oxley, these reviews were periodic
and not subject to specific intervals. Section 408 of
the Sarbanes-Oxley Act requires the SEC to review
those who issue Exchange Act reports no less
frequently than once every three years. A significant
number of companies are selected more frequently.
CorpFin does not publicly disclose the criteria it uses
to select companies and filings for review, but
Section 408 asks the SEC to consider the following
selection criteria:
• Issuers with material restatements of
financial results
• Issuers that experience significant volatility in
their stock price as compared to other issuers
• Issuers with the largest market capitalization
• Emerging companies with disparities in price
to earnings ratios
• Issuers whose operations significantly affect
any material sector of the economy
• Any other factors that the SEC may consider
relevant
Once a company or filing is selected, the extent of the
review may be (1) a full cover-to-cover review, (2) a
review of the financial statements and related
disclosures (e.g., MD&A), or (3) a targeted review of
one or more specific items of disclosure. The
identified reviewer concentrates on critical
disclosures that appear to conflict with SEC rules or
the applicable accounting standards and on disclosure
that appears to be materially deficient in explanation
or clarity. They evaluate the disclosure from an
investor’s perspective and ask questions that an
investor might ask when reading the document.
CorpFin performs its reviews through 11 Assistant
Director (AD) offices organized based on specialized
industry, accounting, and disclosure expertise.
Technology company filings are typically reviewed by
AD offices No. 3 (Information Technologies and
Services) and No. 10 (Electronics and Machinery). An
issuer’s AD assignment is shown in EDGAR following
the basic company information that precedes the
company’s filing history. This organizational
structure can sometimes explain why multiple
companies in the same industry receive very similar
comments around the same time.
Responding to SEC Comment Letters
The SEC staff’s comments are based primarily on a
company’s disclosure and other public information,
such as information on the company’s website, in
press releases, discussed on analysts calls, etc.
(nonpublic information, such as whistleblower tips
and PCAOB inspection findings, can also be a source
of comments). SEC staff comments reflect their
understanding of the applicable facts and
circumstances. In comments, the SEC staff may
request that a company provide supplemental
information so the staff can better understand the
company’s disclosure, or may ask that the company
provide additional or different disclosure in a future
filing or change the accounting and the disclosure by
filing an amendment.
When responding to the SEC staff, keep these best
practices in mind:
• Own the process—Companies should leverage
the knowledge and experience of their
auditors and SEC counsel, but it’s important
to maintain ownership. As with any project,
there should be a clear owner and project
manager coordinating the input from various
sources and developing a response.
• Don’t rush—Companies should evaluate how
long they believe it will take to respond.
Although the letter from the SEC staff will
request a response in 10 business days, it is
acceptable for management (usually through
a call by counsel to the SEC staff) to request
more time if 10 days is not sufficient. A
thoughtful and complete response is better
than a quick reply.
• Think about future filings—Companies
should discuss letters received shortly before
it is planning to file a registration statement
with its auditors and counsel to determine if
there are any implications to the content and
timing of the registration statement.
Questions about timing can also be discussed
with the SEC staff as well as the possibility of
an expedited review of the company’s
response.
• Ask the SEC staff—Companies can call the
SEC staff if they do not understand the
comment. The objective should not be for the
company to explain their position, but to gain
clarification when a comment or aspects of
the comment is unclear.
• Remember that comments become public—
Comments become part of the public domain
once submitted and resolved. Comments and

SEC comment letter process
the related responses are posted to the SEC’s
website no earlier than 20 days after the
review is completed or the registration
statement is declared effective. Even those
comment letters related to Emerging Growth
Companies that have submitted confidentially
are eventually made public. CorpFin will
redact any information subject to a Rule 83
confidential treatment request without
evaluating the substance of that request.
• Don’t rely solely on precedent—Previous
comments and responses of other companies
may provide useful information but should
not be the primary basis of the response. Each
comment is based on specific facts and
circumstances and may involve different
levels of materiality. Accordingly, the reason
the staff accepted a response for one company
may not be applicable in another situation.
Make sure the response is appropriate based
on the company’s specific facts and applicable
accounting literature.
• Address the intent of the question—Consider,
if possible, the objective of the SEC staff
comment. Sometimes providing a complete
answer that addresses the intent of the
question can stave off future comments.
• Provide planned disclosures—Many
comments request additional disclosure in
future filings. To ensure there is a meeting of
the minds, provide the SEC staff with a draft
of the applicable disclosure, even if the data
used is from a prior period. This can allow the
SEC staff to assess whether the narrative
sufficiently addresses their comment and may
prevent future comments on the same
disclosure.
The company or its representatives should feel free
to involve the SEC’s Office of the Chief Accountant
(OCA) (distinct from CorpFin’s Office of Chief
Accountant) at any stage in this process. Generally,
OCA addresses questions concerning the
application of GAAP while CorpFin resolves
matters concerning the age, form, and content of
financial statements required to be included in a
filing.
Closing a Filing Review
When a company has resolved all SEC staff
comments on an Exchange Act registration
statement, a periodic or current report, or a
preliminary proxy statement, CorpFin provides the
company with a letter to confirm that its review of
the filing is complete.
When a company has resolved all SEC staff
comments on a Securities Act registration statement,
the company may request that the SEC declare the
registration statement effective so that it can proceed
with the transaction.
A more detailed discussion of the filing review
process used by the Division of Corporate Finance
can be found on the SEC’s website at:
http://www.sec.gov/divisions/corpfin/cffilingreview.
htm

About PwC’s
Technology Institute
The Technology Institute is PwC’s global research
network that studies the business of technology and the
technology of business with the purpose of creating
thought leadership that offers both fact-based analysis
and experience-based perspectives. Technology Institute
insights and viewpoints originate from active
collaboration between our professionals across the globe
and their first-hand experiences working in and with the
Technology industry.
Let’s talk
Please reach out to any of our technology leaders to
discuss this or other challenges. We’re here to help.
Pierre-Alain Sur
US Technology Industry Leader
646 471 6973
pierre-alain.sur@pwc.com
Kevin Healy
US Technology Assurance Leader
408 817 3834
kevin.healy@pwc.com
Kayvan Shahabi
US Technology Advisory Leader
408 817 5724
kayvan.shahabi@pwc.com
Diane Baylor
US Technology Tax Leader
408 817 5005
diane.baylor@pwc.com
Visit our website at:
www.pwc.com/us/en/technology/
Acknowledgments
The following PwC professionals contributed their
experience and knowledge to produce this paper.
Mila Petrova
Partner
National Professional Services Group
SEC Services
973 236 5601
mila.p.petrova@pwc.com
Jeff Womer
Partner
SEC Services
973 236 5360
jeffrey.womer@pwc.com
Courtney Blum
Senior Manager
SEC Services
973 236 7726
courtney.blum@pwc.com
Marti Bruketta
Managing Director
SEC Services
408 817 4428
marti.bruketta@pwc.com

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