Rosetta Stone 2011 Annual Report Download - page 95

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, accounts payable
and other accrued expenses approximate fair value due to relatively short periods to maturity.
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. In 2011 and 2010, we made additional payments of $350,000 and $400,000 respectively in accordance with the terms of the
purchase.
See table below for a summary of the opening balances to the closing balances of the contingent purchase consideration (in thousands):
As of December 31,
2011 2010
Contingent purchase price accrual, beginning of period $ 573 $ 850
Minimum revenue target met, increase in contingent liability charged to expense in the
period 77 123
Payment of contingent purchase liability (350) (400)
Contingent purchase price accrual, end of period $ 300 $ 573
See table below for summary of the Company's financial instruments accounted for at fair value on a recurring basis, which consist only of our short-
term investments that are marked to fair value at each balance sheet date, as well as the fair value of the accrual for the contingent purchase price of our
acquisition of SGLC in 2009:
Fair Value as of December 31, 2011 using: Fair Value as of December 31, 2010 using:
December 31,
2011
Quoted
Prices
in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) December 31, 2010
Quoted
Prices
in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Short-term
investments $ 9,711 $ 9,711 $ — $ — $ 6,410 $ 6,410 $ — $ —
Total $ 9,711 $ 9,711 $ — $ — $ — $ — $ — $ —
Liabilities:
Contingent
purchase
price
accrual $ 300 $ — $ — $ 300 $ 573 $ — $ — $ 573
Total $ 300 $ — $ — $ 300 $ 573 $ — $ — $ 573
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