Rosetta Stone 2011 Annual Report Download - page 102

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the
statement of changes in stockholders' equity. The amendments in this update do not change the items that must be reported in other comprehensive income or
when an item of other comprehensive income must be reclassified to net income, thus the adoption of such standard will not have a material impact on the
Company's reported results of operations and financial position, but there will be a qualitative impact of adding an additional statement to the Company's
consolidated financial statements.
In September 2011, the FASB issued new guidance on goodwill impairment testing (ASU 2011-08, Intangibles—Goodwill and Other (Topic 350):
Testing Goodwill for Impairment), effective for calendar years beginning after December 15, 2011. Early adoption is permitted. The objective of this standard
is to simplify how an entity tests goodwill for impairment. The amendments in this standard will allow an entity to first assess qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it needs to perform the
quantitative two-step goodwill impairment test. Only if an entity determines, based on qualitative assessment, that it is more likely than not that a reporting
unit's fair value is less than its carrying value will it be required to calculate the fair value of the reporting unit. The Company intends to adopt this new
guidance beginning fiscal year 2012.
3. INVENTORY
Inventory consisted of the following (in thousands):
As of
December 31,
2011 2010
Raw materials $ 2,458 $ 4,423
Finished goods 4,265 5,505
Total inventory $ 6,723 $ 9,928
4. ACQUISITIONS
On November 1, 2009, the Company acquired certain assets from SGLC International Co. Ltd. ("SGLC"), a software reseller headquartered in Seoul,
South Korea. As the assets acquired constituted a business, this transaction was accounted for under Accounting Standards Codification topic 805, Business
Combination ("ASC 805"). The purchase price consisted of an initial cash payment of $100,000, followed by three annual cash installment payments, based
on revenue performance in South Korea. The terms of the acquisition agreement provide for additional consideration to be paid by the Company in each of the
following three years, if the acquired company's revenues exceed certain targeted levels each of these years. The amount is calculated as the lesser of a
percentage of the revenue generated or a fixed amount for each year, based on the terms of the agreement.
Based on these terms, the minimum additional cash payment is zero if none of the minimum revenue targets are met, and the maximum additional
payment is $1.1 million. Management determined that the total contingent consideration for inclusion in the purchase price was the maximum of $1.1 million,
the fair value of which is $850,000. Including the cash paid upon the acquisition date of
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